Inflation has cooled since its peak last summer. Airplane tickets are cheaper, natural gas is cheaper, even eggs are cheaper. But housing? It's stubbornly expensive.
The median home price has risen to $413,800–the second-highest price ever, after June 2022, according to data released Thursday by the National Association of Realtors. This is even as existing-home sales overall are declining.
"People are maybe wondering, 'Oh, with the housing market down, maybe I can find some bargains,' but that is not the case. It is very difficult to find a bargain," said Lawrence Yun, chief economist for NAR.
Renters, too, are still feeling the pinch. Rental prices have risen 26% since February 2020.
The tough situation won't last forever, but economists aren't sure how long it will persist.
The problem: Not enough homes & pricey mortgages
Home buyers face two major challenges: not enough homes for sale, and high interest rates.
Zillow estimates that the country is short about 4 million houses, partially because fewer homes were built following the Great Recession. Inventory for single-family homes is the lowest it's been since 1983, according to NAR.
Because so few homes are on the market, bidding wars continue. About a third of recent buyers are paying more than the asking price for their homes, according to NAR.
"This is a fast-moving market, and consequently the buyers have to be ready," Yun said.
Not only are buyers paying more than asking price, they're also ending up with higher mortgage rates. According to Freddie Mac, the average mortgage rate is nearly 7% for a 30-year fixed mortgage. And that's compounding the shortage of homes on the market: homeowners are hesitant to sell their houses because they don't want to end up with higher mortgage rates on new homes.
Many expected the rise in mortgage rates to moderate home prices. So far, it's had the opposite impact.
"The for-sale market really cooled down in the second half of last year, and now just the shortage of available homes to buy is causing it to heat back up and has actually brought the prices fully round trip," Zillow economist Jeff Tucker said.
As a result of higher mortgage rates and fewer homes on the market, the number of homes sold has dropped. Sales declined 3% since last month, and they're down 18% from this time last year, according to NAR.
The rental market has been on a similar rollercoaster. Rental costs have risen 26% since before the pandemic, according to CoreLogic. While the rate of increase has slowed, prices are still growing.
"That change is more or less kind of permanent," said Molly Boesel, principal economist at CoreLogic. "We're not going to see rents fall, probably not at all, but certainly not by that amount."
Hope for homebuyers on the horizon
Even though the housing market is in a slump, there are some reasons buyers can be hopeful for the future. Prices are down from this time last year.
While inflation is still higher than the Federal Reserve's target of 2%, some economists believe inflation has peaked – as have home prices.
"The Federal Reserve isn't yet ready to declare mission accomplished with its battle against inflation, but there have been some positive signals on the inflation front," said Bankrate senior economic analyst Mark Hamrick.
Once the Federal Reserve indicates it's done raising rates, we could see mortgage rates decline too, Hamrick said.
Additionally, the tight supply in the housing market has benefitted home builders. Buyers looking for homes are increasingly turning to newly built houses.
Although builders broke ground on fewer houses in June, construction surged in May, according to census data. Plus, home builders have a confident outlook on the market, according to the National Association of Home Builders and Wells Fargo.
Rent or buy? Here's what the experts say
The decision to rent or buy is a big one, and it depends on lots of things: budget, location, how many bedrooms needed, and the list goes on. But Zillow's Tucker said, on average, buying a home right now costs more than renting.
"The relative cost of owning and renting has really shifted, where the cost of owning has risen much more than the cost of renting," he said.
The cost of home ownership also extends beyond the down payment and mortgage payments, Hamrick said. Homeowners must pay maintenance costs on things like plumbing issues and broken air-conditioners, and according to a recent Bankrate study, one in five people don't have any emergency savings.
"It is still part of the proverbial American dream to have homeownership," Hamrick said. "Now might not be the best time for everybody to embark on that."
But if you feel like it's the right time for you to buy a house and you've found the perfect listing, don't feel pressured to wait for a lower price or a better mortgage rate. Boesel bought her house in 1999 with a mortgage rate of 8%, but through refinancing has gotten her mortgage rate down to 3%.
"There's really no reason to wait, if they find the right property," Boesel said.
