Lower mortgages rates lure buyers, but sellers still scarce

In 2022, home mortgage rates doubled. Consumers adjusted to those rising rates, in part, by purchasing fewer homes, and so home sales declined nearly 18% year over year.

You might think that a big drop in sales might result in lower housing prices. But then, you’d be wrong!

FOX 5 real estate expert John Adams examinee the supply and demand side of real estate on Good Day Atlanta.

Adams says that In a normal economic environment, a drop in the housing market would lead to cheaper home, but this is not normal for a variety of reasons:

1. We continue to have a shortage of homes for sale, especially in the southeastern United States. Yes, builders have increased production, but the resale market is usually four to five times the size of new construction homes, and existing homeowners are staying put.

2. A real estate market that is balanced between sellers and buyers is called "in equilibrium," and happens when we see a six-month inventory of homes for sale. Today in metro Atlanta, housing inventory is stuck at about 2.5 months. That means it is a seller’s market.

3. Existing homeowners recognize that if they move, they will have to replace their existing mortgage with a new loan at a much higher rate, and they are simply not willing to do that. That’s called the "lock-in effect," because existing owners are locked to their current home.

4. Consumers initially resisted any mortgage rates higher than 4%, but now that rates have recently fallen from near 8% to just below 7%, many buyers are willing to take the leap. They just can’t find anything for sale, especially in a starter home price range.

5. The problem has been especially challenging for first-time home buyers, who not only face seemingly high prices and high interest rates, but a real shortage of opportunities from which to choose.  Builders prefer to build more expensive move-up homes which offer a higher profit margin.

Adams says if you are a first-time home buyer and are hoping to ditch your landlord for good, he want you to think of home-buying as a journey as opposed to a one-time event.

It may be smart to rent for another year, building up your savings and bolstering your credit while continuing to look for the right opportunity to come your way. If interest rates do come down in 2024, prices will likely rise in response, so be prepared to act quickly if the right deal comes along.  

Finally, get out of your rut! Consider moving to a less expensive area. Consider rent-to-own. Consider buying a duplex and living on one side. Consider manufactured housing. All of these ideas and more may get started on your homeownership journey.

Atlanta native John Adams has been a real estate broker and investor in residential real estate for the past four decades.