“Higher For Longer” Rates Keeping Buyers Sidelined Even As Inventory Rises

Just as inventory is picking up, “higher for longer” decisions by the Feds are keeping buyers sidelined with 7% interest rates.

That’s according to First American, which has released its April 2024 Home Price Index report. The data suggests that a recent uptick in inventory will boost sales activity as the spring buying season peaks but won’t result in a full turn-around of demand.

Homebuyers and sellers are often the same – sellers have to buy a new home in order to move – and have a financial disincentive to do either. Nearly 90% of mortgaged homes have a rate below 6%. 

At the same time, home prices are up 53% compared to pre-pandemic levels and keep rising month-over-month.

Some Americans have been forced by circumstance to move despite the downfalls. New listings were up 16% in April compared to the same month last year. With the spring season underway, more existing inventory may hit the market.

“More supply amid a pullback in demand means price appreciation is cooling. The month-over-month growth rate peaked in February at 1.3%, but has since cooled significantly. This supply-demand dynamic is likely to persist, so expect year-over-year price appreciation to follow this cooling trend in the months to come,” said Mark Fleming, chief economist at First American.

However, starter homes continue to be a sticking point. First-time buyers face huge hurdles and struggle to break into the market, while entry-level homes are seeing the highest price appreciation of any tier.

“Given starter homes are the least supplied and the most demanded segment of the market, it’s no surprise that, even in a ‘higher-for-longer’ rate environment, there are markets with double-digit annualized price appreciation,” Fleming noted.

Starter home prices are up more than 10% YOY in St. Louis, Miami, and Pittsburgh.

Some experts say that the concept of a starter home is dying out as prices change the homebuying landscape.

“Today, first purchases are typically becoming either apartments or condos or townhouses. I’m not seeing too many first-time buyers purchase a single-family home,” said John Barone, a New Jersey realtor.

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