Is US House Prices Going Down?
Mortgage rates are at their highest level in two decades as of August 22. The American Enterprise Institute’s Housing Center measures prices month over month. In August, prices fell 1.6% from July. The latest numbers have sparked a flurry of concerns. Here’s what you should know about rising interest rates, falling home sales, and inflation. All of these factors are driving home prices down. The good news is that the trend isn’t permanent.
Rising interest rates
Rising interest rates are causing house prices to fall in the United States, but this doesn’t necessarily mean that demand is going to go down. After all, people buy homes for a variety of reasons, and the need for mortgages will remain the same. The rising interest rate, however, will make it harder for a buyer to justify a purchase. This can cause sellers to lower prices in an effort to attract buyers.
A number of economists say rising interest rates are contributing to the slowdown. Rising rates are reducing the supply of homes, which is making it more difficult for buyers to purchase a home. Meanwhile, fewer people are moving out of their existing homes, and new construction has slowed.
Rising US house prices are impacting consumer wealth and the affordability of neighborhoods. They are also playing a role in overall inflation. The Consumer Price Index (CPI) measures the prices of a basket of goods and services. The items are weighted by their average share in total expenditures. Housing costs make up nearly a third of the basket, or 40 percent of the core CPI, which excludes volatile food and energy components.
Rising home prices in the United States mean that more people are looking to purchase a home. This means fewer houses are available on the market. This increases demand, which drives up prices. In addition, home sales and median rents have reached record highs this year. While rising prices are a cause for concern, one solution is to increase housing supply. Inflationary pressure has also caused an increase in rents.
Rising gas prices
Rising gas prices in the US have become a major political issue in the country. While the Biden administration has pushed for a three-month suspension of the federal tax on gas, and encouraged states to do the same, it is clear that more oil is needed to meet demand. The current low supply of oil is pushing up gas prices, and lawmakers are desperate to find solutions. To address this problem, the White House is considering a number of policy measures. It has committed to release one million barrels a day from the Strategic Petroleum Reserve (SPR), implemented the Defense Production Act (DPA), and allowed gasoline blends with ethanol. However, these measures are opposed by environmental groups.
Another major driver of gas prices is the cost of refining crude oil. The number of refineries has been decreasing and fewer are being built, which has pushed up gas prices. Refineries that remain are working at near capacity, while others have been shut down. Taxes and transportation costs have also contributed to the price of gas.
Falling home sales
US housing market is showing signs of slowing down. According to the National Association of Realtors (NAR), existing home sales fell for the sixth consecutive month in July, with the number of homes sold in that month falling 5.9% compared to June. This is the slowest pace since November 2015, and comes at a time when rising mortgage rates are discouraging many would-be buyers from buying a home.
Although the US housing market is showing signs of slowing, the primary reason behind this trend is the Baby Boomers aging and moving into retirement. While these baby boomers will be the primary drivers of home sales, the influence of the Millennial generation will also be significant. The group is expected to find higher paying jobs and become first-time homebuyers. The influence of Generation Y is likely to peak in this decade, while the Baby Boomer generation will continue to drive the market for the foreseeable future.