This makes sense to me based on the economics related to interest rates.
If interest rates go up, it becomes harder to borrow money to purchase a home.
When it becomes harder to borrow money to purchase a home, demand for homes goes down and inventories go up.
When inventories go up, prices go down.
After prices go down enough (to what is equally affordable with the new interest rates), sales go up and inventories go down.
Last week there was a Washington Post story [1] about how home affordability was hurt by the higher rates, but it feels like that was just part of what should be an expected chain of causes and effects.
(Granted, none of this is happening in isolation, but my gut feeling is that interest rate changes are the most important factor to consider right now).
This is exactly the mechanism by which the benchmark rate should lower real estate prices, it just takes time for transactions to occur (setting comps which contributes to price declines, as recent comps are used for appraisals). Those who must sell will sell first, dragging future sales price action with them. Very high cost of living real estate is especially impacted by interest rates due to the amount borrowed exposed to current mortgage interest rates. $800k borrowed (assuming $200k down on a $1M property) at 3% is half the cost monthly (principal and interest) vs 8%.
More supply would be helpful, but we’re decades behind building housing so a lot more hope in interest rates driving down prices.
If interest rates go up, it becomes harder to borrow money to purchase a home. When it becomes harder to borrow money to purchase a home, demand for homes goes down and inventories go up. When inventories go up, prices go down. After prices go down enough (to what is equally affordable with the new interest rates), sales go up and inventories go down.
Last week there was a Washington Post story [1] about how home affordability was hurt by the higher rates, but it feels like that was just part of what should be an expected chain of causes and effects.
(Granted, none of this is happening in isolation, but my gut feeling is that interest rate changes are the most important factor to consider right now).
[1] https://www.washingtonpost.com/business/2023/08/12/millennia...