House Prices are Dropping! Is it a Buyer’s Market?

According to Moody’s Analytics, nearly half of all US states saw a drop in housing prices in May. These were mainly states in the South and West. Overall, prices rose by 0.12% nationwide. Prices are still rising, but that’s a huge decrease from the almost 6% increase we saw last year nationwide. Prices are softening. Is a buyer’s market coming?

In Short, No

Sadly, there are two major reasons that prices are dropping. The first is increased interest rates. Post pandemic, people have had a lot of cash. They could afford to pay more for houses and amazingly, the higher interest rates didn’t really seem to cause them to bat an eye. Now, inflation has made that cash worth less and people are finding they can’t pay as much for homes. But I think until we see a pronounced recession, buyers will still be demanding houses, propping up the price.

The second reason is all of the housing construction. Demand has been high in the past 5 years or more and building construction has been going at a feverish pace. All of those plans were set on rails and we still have a lot of houses being built. That increased supply will depress the prices. Unfortunately for buyers, the number of buyers looking for houses is still pretty high and will continue to keep prices from a huge downswing.

So, prices are dropping and probably will continue to do so, but won’t be anything severe this year. There won’t be any deep discounts right now. For that to occur, the FED would have to raise interest rates to a point that a recession occurs, and buyers drop out of the market. That’ll help landlords as those would-be buyers will be renting. Then it will be a buyer’s market. But, the FED is softening its stance on rate increases. I think there will still be more increases, but less frequent. Buyer’s market? Don’t hold your breath.

Dr. Equity

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