What Comes Next for the Housing Market?
The Federal Reserve still expects to cut rates this year, and a change in selling practices could shake up home shopping. Here’s the outlook.
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Federal Reserve officials are planning to cut interest rates this year, real estate agents are likely to slash their commissions after a major settlement and President Biden has begun to look for ways his administration can alleviate high housing costs.
A lot of change is happening in the housing market, in short. While sales have slowed markedly amid higher interest rates, both home prices and rents remain sharply higher than before the pandemic. The question now is whether the recent developments will cool costs down.
Economists who study the housing market said they expected cost increases to be relatively moderate over the next year. But they don’t expect prices to actually come down in most markets, especially for home purchases. Demographic trends are still fueling solid demand, and cheaper mortgages could lure buyers into a market that still has too few homes for sale, even if lower rates could help draw in more supply around the edges.
“It has become almost impossible for me to imagine home prices actually going down,” said Glenn Kelman, the chief executive of Redfin. “The constraints on inventory are so profound.”
Here’s what is changing and what it could mean for buyers, sellers and renters.
Interest rates are expected to fall.
Mortgages have been pricey lately in part because the Fed has lifted interest rates to a more-than-two-decade high. The central bank doesn’t set mortgage rates, but its policy moves trickle out to make borrowing more expensive across the economy. Rates on 30-year mortgages have been hovering just below 7 percent, up from below 3 percent as recently at 2021.
Those rates could come down when the Fed lowers borrowing costs, particularly if investors come to expect that it will cut rates more notably than what they currently anticipate.
Mortgage rates and some other borrowing costs tend to adjust when investors shift their expectations for what the Fed will do, rather than when the central bank actually makes a move. That is one reason mortgage rates have been drifting lower from a peak of about 7.8 percent in late 2023: Inflation has eased, and it has become clear that the Fed could soon reduce its policy rate.
