The long-awaited balanced real estate market, with supply and demand in equilibrium and prices growing at more modest, sustainable levels, seems to be as elusive as ever. The overall housing supply remains tight, and prices, supported by a severe, ongoing housing shortage, are not cooling as quickly as once expected.
Inventory is Tight and Home Prices are Sticky
According to the National Association of Realtors, existing home sales were down 3.4 percent in April, with only a 2.9 months’ supply of homes in the US. A balanced market is traditionally considered about a six-month supply of homes. And while there are always less-desirable homes on the market—overpriced, in inferior locations or needing substantial renovation—these passed-over homes represent a larger share of a tight-inventory market.
While buyer interest has been tempered somewhat by low inventory and higher mortgage rates, buyers continued to crowd open houses, particularly for more affordable properties. Buyers’ continued enthusiasm is helping prop up home prices longer than expected, and bidding wars haven’t disappeared entirely. Meanwhile, higher rates mean that buyers can afford less house than even one year ago. Some have become priced out altogether.
Many Sellers Feel Locked In during the Frozen Housing Market
Of course, most home sellers are also home buyers. And they face the same limited inventory, high prices and higher mortgage rates as everyone else. According to a Realtor.com survey of more than 1,200 recent or potential home sellers, “More than three-quarters of sellers feel ‘locked in’ to their current home due to a low mortgage rate. More than half of sellers surveyed plan to wait until rates come down before selling, while 25 percent plan to sell soon for personal reasons, despite feeling locked in.”
Realtor.com adds that “The vast majority of Gen Z, Millennial and Gen X owners surveyed feel locked in by their current mortgage rate, with 97 percent, 87 percent and 87 percent of owners citing this feeling, respectively.” Baby Boomers, with more home equity and less debt, are less likely to feel locked in.
Many prospective sellers would like to move but don’t have a compelling life event like a domestic relocation, divorce or estate settlement forcing them to do so. They can afford to ride out the situation and hope for lower mortgage rates. According to Freddie Mac, the average rate for a 30-year fixed mortgage is 6.79 percent–a far cry from the rates in the 3 percent range just a couple of years ago. Rates have been declining slowly and occasionally spiking higher.
Implications for Relocating Employees
The current frozen housing market is making convincing reluctant employees to relocate even more challenging. Prospective transferees might expect more financial support and more time to complete a move. Relocating employees who can sell their homes promptly might need longer than usual to find a new home. This can increase stress, the time spent in temporary living for employees, and overall relocation costs for their employers.
In some areas, buyers might find more new than existing homes for sale. Transferees were traditionally discouraged from buying new construction for fear the process would slow down the move. However, new construction might present an opportunity to get the move done when few other options are available.
Once the employee has found a home to buy, companies can offer creative mortgage programs to make the purchase easier and more affordable. These include sliding scales (a permanent rate buydown), mortgage interest differential assistance (MIDA), interest-based mortgage subsidies (step program), and dollar-driven mortgage subsidies. Many of these programs will be familiar to those who have been in the relocation industry for a while. Others are new concepts.
When Will the Frozen Housing Market End?
Most experts think the market will take some time to return to more-or-less equilibrium. As time passes, more people who thought they were in their forever home realize their priorities have changed and decide they’re ready to move. This becomes easier once higher mortgage rates become normalized and baked into real estate decisions.
Interestingly, the mortgage market might be ahead of the real estate market in returning to equilibrium. According to Trading Economics, “The 30-year mortgage rate in the United States averaged 7.74 percent from 1971 until 2023, reaching an all-time high of 18.63 percent in October of 1981 and a record low of 2.65 percent in January of 2021.”
So current rates are approaching the postwar average, even if they seem high compared to recent history. There is no reason to expect they’ll settle back into the 2-3 percent range. And if rates decline markedly, there’s always the option to refinance.