When will housing prices and mortgage rates in the United States fall?

In the United States, the current housing market presents a challenging outlook for potential homebuyers. Both housing prices and mortgage rates are at historically high levels, making it tougher for those in search of a new home.

At present, the median housing price in the U.S. stands at around 410,000 USD, significantly higher compared to pre-pandemic levels. Housing prices have been steadily rising in recent years, although the pace of increase has slightly slowed down in recent times.

Currently, the 30-year fixed mortgage rate sits at around 7%, much higher than during the pandemic period when rates dropped to below 3%. Over the past few decades, the average rate for a 30-year fixed mortgage typically fluctuated between 4% and 6%.

Recent data indicates that as of November 2024, national housing prices saw a year-on-year increase of 3.4%, lower than the previous year’s 5.2% and significantly less than the 8.6% growth rate in November 2022. This trend suggests a further deceleration in housing price growth in the upcoming months.

However, the situation varies across different regions. Some areas in the Northeastern U.S. and the Appalachian region continue to experience rapid increases in housing prices, while states like Wyoming, Idaho, Washington, and Hawaii are seeing prices dip below recent peaks.

In Florida, once hailed as the ideal destination for first-time homebuyers and one of the most popular migration spots in 2023, housing prices are now declining due to various factors. The market in the Sunshine State has seen a significant increase in the number of homes for sale, partly driven by substantial hikes in property taxes and insurance costs.

Many homeowners are finding it increasingly challenging to afford these additional costs, especially with rising property insurance expenses caused by hurricanes and other natural disasters. The higher costs associated with mitigating these risks, including higher Homeowners Association (HOA) fees to retrofit older homes to meet disaster resilience standards, are making homeownership more financially burdensome.

While Florida continues to attract new residents with its robust economy and employment opportunities, the median home price in the state is around 430,000 USD. As of November 2024, the number of homes for sale has significantly increased, with market inventory growing by 22.5% year-on-year.

Factors such as increased home construction to boost supply are contributing to a potential decrease in average home prices. Although construction progress varies across regions, overall, there is an upward trend in housing construction.

Predictions of an economic recession or slowdown have been circulating over the past few years. If such a scenario unfolds, leading to rising unemployment rates, purchasing power may decrease, potentially prompting sellers to lower prices as the market shifts from being seller-favorable to buyer-favorable.

Changes in real estate regulations and tax policies will also impact housing prices, depending on the significance and direction of these policy shifts after implementation.

While these factors will have more long-term effects on housing prices, demographic shifts will directly influence price movements. The retirement of the baby boomer generation and the passing of homeowners will result in an increased supply of homes in the market. At the same time, the younger generation is not as sizable as the baby boomers, leading to fewer potential buyers and exerting pressure on housing prices.

Changes in interest rates also signal variations in overall housing affordability. Let’s discuss the trend of mortgage rates next.

As of January 17, 2025, mortgage rates continue to trend upward. The 30-year fixed mortgage rate stands at 7.11%, up by 0.08% from the previous week, while the 15-year fixed mortgage rate is at 6.39%, a 0.05% increase from a week before.

Adjustable-rate mortgages, like the 5/1 ARM, are at 6.60%, up by 0.05% compared to the previous week, and jumbo 30-year fixed-rate mortgages are at 7.16%, showing a 0.05% increase.

The rise in mortgage rates is driven by sustained inflation and a robust economy. Rates are closely tied to the 10-year U.S. Treasury bond yields; when these yields increase, mortgage rates tend to follow suit. Over the past few months, 10-year U.S. Treasury bond yields have steadily risen from 3.72% in September 2024 to 4.61% in January 2025.

As demand for mortgage-backed securities decreases, the spread between U.S. Treasury bond yields and mortgage rates widens. A combination of these factors has pushed mortgage rates above 7% in recent times.

Considering the current high levels of housing prices and mortgage rates, waiting to purchase a home might be a prudent choice. Taking into account all the factors mentioned, better conditions are likely to emerge in the future.

In the cyclical nature of the real estate market, a mix of economic downturns, demographic shifts, housing supply, and other factors will eventually transition the market from favoring sellers to favoring buyers.

While the income required for homeownership varies based on location, home prices, and other factors, nationally, an average household needs to earn approximately 99,000 USD to afford a home priced at the median of 415,500 USD. This calculation includes property taxes and insurance costs, assuming a 10% down payment.

However, in some regions, the income needed for homeownership can be significantly higher. For example, in California, where the median home price is 730,000 USD, the required minimum income is around 173,000 USD. In Hawaii, this figure goes even higher, reaching 202,200 USD.

With the rise in housing prices, mortgage rates, maintenance costs, property taxes, and HOA fees, the calculation of homeownership costs has shifted from owning to leasing in terms of overall cost and value consideration. According to Bankrate analysis, in most major U.S. cities, renting is a more cost-effective option when weighing the decision between renting and buying a home.

A report by Bankrate in February 2024 showed that owning a home was around 37% more expensive than renting, with monthly mortgage costs significantly higher than rental expenses.

By January 2025, this difference has widened further, with owning a home being approximately 45% more costly compared to renting. Based on Redfin data, the national median mortgage cost is 2,525 USD, while the average national rent is 1,592 USD.

While the desire for homeownership remains strong, affordability is currently a significant barrier preventing many from purchasing their ideal homes. However, at some point, the market will tilt toward those aspiring to own their homes.

If, like me, you believe that patience and renting are the best financial choices until market shifts occur, your patience will prove to be a virtue and bring substantial financial relief when the time is right.