We all know that prices of homes are decreasing all over the country. Major markets like Las Vegas, Nevada and Phoenix, Arizona are seeing huge price drops. And even smaller markets like our own neighborhoods here in southeast Idaho are seeing the price declines. Why?
Three reasons. First and most obvious, the prices of homes just got too high too fast. Surging prices over the last two years were ridiculous. It wasn’t uncommon for someone who bought a new home in 2018 to sell that same home in the summer of 2021 for double the price they paid for it! That is crazy. Second, inflation. Inflation in all consumer products. From gasoline to groceries, budgets for consumers are squeezed. A higher house payment is not feasible when everything else is so expensive. And third, and maybe the biggest reason, higher mortgage rates. Today’s 30 year fixed rate is around 6.9%. That is around 4% higher than the all time lows rates were at just 2 years ago. Those low rates are also a reason house prices went up. When rates are lower, payments are lower and borrowers can afford higher prices. So, now with higher rates and higher prices, something has to give. And prices will drop before rates do.