When Will Home Prices Finally Come Down?

Housing Affordability

U.S. home affordability has hit record lows. Home prices are at record highs, and while mortgage rates have come down from their highs (and are expected to come down further), many prospective homebuyers feel shut out of the market.

So when will the market finally turn?

Light at the End of a Long Tunnel

If you ask analysts at Goldman Sachs, it will be “a five-year odyssey of slow normalization.” Oof. If you’re in the market now, this may feel like a long time away. So why will it take so long?

The answer to this includes a closer look at the U.S. housing market, which has been structurally undersupplied for years. That means that there are fewer houses for sale than buyers in the market.

There are multiple reasons for that. For one, fewer homes are being built on the whole (costs have a role to play here), and second, existing homeowners who could downsize are hesitant to do so given the high interest rate environment. Getting out of one mortgage could mean getting into one with a higher rate to live in a smaller place.

Over time, as mortgage rates come down further and homes are being built, the demand-supply equilibrium in the housing market should come back into balance again. It just won’t be a quick process.

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