The Retired Investor: Has the Real Estate Market turned?

Home prices have been climbing for years, but the pace of that growth is beginning to cool. That may be good news for some buyers, but relatively few Americans can still find a place they can afford to buy.

 

Redfin, a national real estate brokerage, recently estimated that there are almost half a million more home sellers than buyers in today's housing market. In 2023, buyers outnumbered sellers but last year the trend turned. Sellers outnumbered buyers by 6.5 percent. Today, sellers outnumber buyers by 33.7 percent, which is the most significant gap since 2013.

 

The recent economic uncertainty has sparked a willingness to sell but has also made buyers hesitant. The upcoming threat of tariffs on foreign goods, their potential impact on the economy, and concerns about possible layoffs, such as those affecting federal workers, have combined to reduce demand for housing. 

 

If history is any guide, when the trend reverses, housing prices drop. That appears to be happening in select areas, such as Florida, California, and Texas, but only modestly so far. The combination of high house prices and lofty mortgage rates is taking its toll.

 

Statistics indicate that the housing inventory has increased nationwide. Single-family home construction is expected to grow by 3 percent, while multifamily starts are projected to decline by 4 percent. Theoretically, this means buyers have more options, which can help ease price pressures. However, beneath the surface of the housing market, the supply of houses in the lower and middle price tiers remains subpar and more volatile than at the high end of the market.

 

Buyers are also struggling to find anything they can afford, especially first-time homebuyers. The median price of a home sold in the U.S. during the first quarter of the year was $417,000, 33 percent more than it cost in 2019 before the pandemic. First-time buyers are looking for something cheaper than the average, but even then it's hard to find something they can afford. A typical home will cost a buyer $361,000 in 2025, according to Zillow, compared to $354,000 last year.

 

Thanks to inflation, a tighter Fed policy, and concerns about the country's growing debt and deficit, interest rates have risen significantly in the last several years. Mortgage rates have climbed above 6.92 percent. The average rate on a 30-year fixed mortgage hasn't dipped below 6 percent since 2022, according to Freddie Mac. As such, most consumers who took out new mortgages in recent years have rates above 6 percent.

 

Over the last several years, as interest rates continued to rise, many U.S. homeowners who were lucky or astute enough to lock in a mortgage rate of 3 percent or less in the past, stayed put. Sure, prices were going up for their home, they reasoned, but so were mortgage rates. At current rates, they would be crazy to sell.

 

But the years are passing, and many empty-nester homeowners are getting older. Others are changing jobs or getting divorced. Some are having more children. The pressure to sell is mounting. The sticker shock of paying twice your existing mortgage rate or more is waning, and what's to say that mortgage rates won't go even higher?

 

Home prices declined in 11 of the top 50 most populous metro areas in the last month. The spring buying season has been sluggish, to say the least. To be sure, no one is looking for a market crash or anything remotely like it. However, the higher long-term interest rates climb, the more buyers will disappear.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.