Market Update

Amid rising mortgage rates, resilient home prices, and a seemingly shrinking inventory, many are hoping for a downturn in the real estate market to make homeownership more affordable. However, the housing market in 2024 continues to defy those expectations, with prices on a steady climb in many areas. This article breaks down the factors keeping prices high and the market stable, despite widespread predictions of an imminent correction.

Why Are Prices Still Rising?

The current market is characterized by an unusual combination of high mortgage rates and rising home prices, a situation many believed couldn’t coexist. Yet, prices remain stable or are even increasing across the country. Here’s a look at what’s behind this phenomenon:

• Low Inventory Levels: Inventory remains far below pre-2020 levels, with active listings at a fraction of historical averages.
• Sellers Also Needing To Buy: Many sellers are also buyers, meaning listing their home typically adds one buyer to the pool as well, helping maintain demand.
• Limited New Listings: Although listings have increased slightly, they are nowhere near enough to offset the low inventory.
• Strong Buyer Demand: Despite high rates, a large segment of buyers still has the financial resources to compete.
• Homeowners Sticking With Low Rates: Many homeowners have locked in historically low mortgage rates, making them less likely to sell and contribute to inventory.

Given these factors, the limited supply and continued demand are working together to keep prices steady, even in a high-rate environment.

Also Read: Down Payments Drop While Housing Affordability Issues Persist

Inventory Is Still Too Low

The housing inventory is a key piece of the puzzle in explaining why home prices aren’t falling. The U.S. currently has around 739,000 active listings, which is significantly below pre-pandemic levels when listings typically hovered between 1.1 and 1.6 million.

• Few New Listings: New listings remain at historically low levels compared to past years, even with slight increases in recent months.
• Homeowners Locked Into Low Rates: Many are holding onto their properties due to their low mortgage rates, further tightening the inventory.
• Distressed Sales Are Low: Unlike the 2008 housing crash, foreclosure levels are low, meaning forced sales that could drive prices down are absent.

Even though there has been some growth in new listings year-over-year, it’s not enough to offset the overall shortage, which remains well below levels needed to shift to a buyer’s market.

Buyer Behavior In A High-Rate Market

While some buyers have stepped back due to high mortgage rates, there’s still a substantial group that remains active. Many potential buyers, especially first-timers, are choosing to wait it out, hoping rates will decrease. But others are pushing forward, especially those who have solid financials and are looking for long-term homeownership benefits.

• First-Time Buyers Holding Off: High prices and limited choices are causing many first-time buyers to wait.
• Active, Well-Funded Buyers: Buyers with cash reserves or significant equity are pushing forward despite high rates.
• Selective Purchases: Those entering the market are looking for homes that fit precise needs, leading to longer buying cycles but steady demand.

This mix of hesitant first-time buyers and more resilient buyers with stable finances helps explain why demand, while cooler than in 2021, hasn’t dropped enough to drive prices down.

Also Read: Why The Average 30-Year Fixed Mortgage Rate Jumped To 7%

The Greater Phoenix Market

Greater Phoenix has been a closely watched market, given its rapid growth and shifts in recent years. Despite slight weekly increases in inventory, the number of active listings remains well below what would create a balanced market in the region.

• Moderate Inventory Increases: Phoenix inventory has been gradually increasing but hasn’t yet reached levels needed for a significant price drop.
• Contract Ratios Reflect Local Demand: Some areas in Phoenix and nearby cities still see higher ratios of listings under contract, signaling steady demand.
• Price Stability: The median sales price in Phoenix has seen minimal fluctuations this year, showing resilience despite slower sales activity.

Demand in Greater Phoenix continues to be influenced by population growth and a lack of new inventory, which helps explain the stability in prices. Keep up with all the latest and greatest content on our Greater Phoenix real estate blog. It is there that we share ongoing update!

Will High Mortgage Rates Lead To A Crash?

Many predicted that high mortgage rates would cause the market to crash. Historically, however, home prices have often increased even when mortgage rates rise. According to housing analysts, the only time in recent history that high rates led to a drop in home prices was when other factors, like distressed sales, were in play.

• Rate Increases Aren’t Enough Alone: Rising rates alone rarely cause prices to drop without distressed sales or a major inventory surge.
• Strong Homeowner Equity: Many homeowners now have substantial equity, making them less vulnerable to market changes.
• Historically Low Distressed Sales: Foreclosure and distressed sales remain at record lows, further reducing the risk of a sudden price drop.

Simply put, without an increase in distressed sales or a significant inventory surge, rising rates are unlikely to cause prices to crash.

Also Read: Are Supply Chain Disruptions Impacting Home Builds In Arizona?

Is A Market Shift Coming?

As we move into 2025, it’s important to recognize that major market shifts are unlikely without significant economic changes or unexpected supply increases. Historically, even when rates or inventory change, it’s unusual for prices to drop sharply without a drastic oversupply or distressed sale surge.

• Homeowner Stability: Most homeowners have secure, low-rate mortgages, meaning they’re less likely to sell at a loss or go into foreclosure.
• Gradual Inventory Growth: Even with inventory growing gradually, it’s far from levels that would drastically shift the market.
• Modest Price Changes Likely: Any significant price decreases are unlikely without a drastic, unlikely increase in inventory.

Those waiting for a major price drop may need to wait longer than expected, as current trends point to a stable, if slightly cooling, market.

Conclusion

The housing market in 2024 is characterized by high rates, resilient prices, and low inventory, a combination that doesn’t lend itself to a sudden downturn. While many first-time buyers may continue to wait for more favorable conditions, buyers with solid financials will likely keep prices stable. Without a surge in distressed sales or a drastic increase in inventory, prices are expected to hold steady in the foreseeable future. Those waiting for a crash may find themselves waiting indefinitely, as the current market factors keep real estate resilient even under challenging conditions.

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