"US Record-High Home Prices Expected to Rise Further Next Year"

Supply Shortage Causes
High Interest Rates Reduce Existing Home Listings

Due to supply shortages and other factors, U.S. home prices are expected to surge by more than 6% through next year.

On the 28th (local time), U.S. real estate information company Zillow predicted in a report that "due to high mortgage rates and supply shortages, U.S. home prices will rise by about 6.5% by July next year."

Photo by Bloomberg News

According to Zillow's own estimates, U.S. home prices are expected to increase by 5.8% by the end of this year and 6.5% by July next year. Accordingly, the median price of existing homes in the U.S. is projected to rise from the current $348,125 (approximately 462 million KRW) to $370,754 (approximately 490 million KRW).

Zillow cited supply shortages as the cause of rising U.S. home prices. The sluggish housing construction activity during the pandemic has led to a shortage of new home supply, with current new home supply levels reduced to half of what they were in July 2019, before the pandemic. Due to the surge in mortgage rates, demand to sell existing homes and buy new ones has not materialized, leaving the inventory of existing homes still insufficient.

After showing signs of a rebound earlier this year amid expectations of the end of tightening, the housing market is again showing signs of slowing down. The National Association of Realtors (NAR) reported that existing home sales in July decreased by 2.2% from the previous month to 4.07 million units. This is significantly worse than the market forecast of a 0.2% decline compiled by The Wall Street Journal (WSJ).

Lawrence Yun, chief economist at NAR, predicted, "The combination of record-high home prices, high mortgage rates, and limited housing supply has reduced buyers' purchasing power, and the housing market downturn will continue for some time."

Due to the Federal Reserve's (Fed) aggressive tightening, the average 30-year fixed mortgage rate in the U.S. rose to 7.31% last week, the highest level in 22 years. It was 5.65% a year ago. Because of the high rates, mortgage applications in the U.S. decreased by 4.2% compared to the previous week.

Mortgage rates are rising amid expectations that the U.S. will maintain high interest rates for a considerable period. The current U.S. benchmark interest rate is 5.25?5.5% annually. Fed Chair Jerome Powell left open the possibility of further rate hikes at the Jackson Hole meeting held from August 24 to 26. He stated, "It is a welcome development that inflation has come down from its peak, but it is still too high," and added, "We are prepared to raise rates further if appropriate."

Earlier this year, the National Association of Home Builders (NAHB) Housing Market Index (HMI), a leading and sentiment indicator of the U.S. housing market, continued to rise monthly, leading to optimistic forecasts for the U.S. housing market. Some even speculated that with sufficient supply of new and existing homes, an ideal recovery could occur where transaction volumes increase without home price hikes. However, as previous expectations of rate cuts within the year began to falter, the rebound has remained a temporary recovery.

The WSJ forecasted, "If the Fed continues its rate hike stance through next year, the housing market will enter a recession again," adding, "Until a clear trend of rate cuts begins, the housing market will continue to fluctuate slightly."