Housing Market Doesn't Need Much for Buyers to Return

Surging mortgage rates have brought the housing market down from its giddy highs earlier this year. Now the question on everyone’s mind is how low will building, buying and prices go? We’ve already seen people who follow the market speculate about housing prices falling 10% or even 20% from peak levels.

But that kind of shock-and-awe analysis is incomplete, and based on an assumption that housing affordability has to snap back to pre-pandemic levels, or match some theoretical monthly payment-to-income ratio. A better guess about where the housing market will stabilize would take into account the fact that housing activity was still just fine up until April, even though affordability was much worse than pre-pandemic. You also would need to account for the squiggles in the data as mortgage rates have moved up and down since then.

And those measures suggest it wouldn't take much for the housing market to get back into balance with more stable pricing and transactions. It might take as little as mortgage rates falling back to below 6%, or some additional modest declines in home prices combined with a little more wage growth for workers.

The online real estate brokerage Redfin puts out a weekly report looking at a variety of housing metrics, and it was their end of April report that made it clear that the housing market was slowing. That's when asking prices for homes had risen by more than $400,000, mortgage rates had breached 5%, and monthly payments had risen by the most on record compared with the prior year.

A lot has changed since then. The average mortgage rate was 6.13% last week after touching 7.3% in October. Asking prices for homes have fallen, and worker incomes have continued to grow — yet despite all that volatility there has been remarkable stability in the monthly payment buyers are committing to.