Mar 4, 2024 - Business

Prices could jump when mortgage rates drop

Median home sales price in the Nashville metro area
Data: Redfin; Chart: Alice Feng and Jared Whalen/Visuals

Nashville home sales cooled last year as interest rates squeezed buyers and homeowners alike. But decreasing interest rates won't solve the housing affordability crisis.

  • In fact, prices may rise when rates come down.

Why it matters: Steep borrowing costs are just one part of the housing affordability equation.

  • Lower mortgage rates could push home prices up in Nashville and nationwide if demand surges and inventory remains tight.

The latest: Home sales have already shown evidence of a reservoir of would-be buyers ready to pounce. In January, amid a modest and temporary drop in interest rates, there were 1,886 home closings reported in the Nashville area, according to figures provided by Greater Nashville Realtors.

  • That's a 5% increase over the same month last year.

The big picture: This is the least affordable housing market for first-time buyers nationally in more than four decades, Axios' Emily Peck reports.

  • The typical monthly mortgage rose to 40% of a buyer's household income last year, the highest rate since the 1980s, per Capital Economics. That crashed demand from first-time buyers.

State of play: U.S. rates for 30-year mortgages are down from 20-year highs but have crossed 7% again.

By the numbers: In Nashville, sales prices soared when mortgage rates dropped below 3% in 2021.

  • Nashville's market was white-hot throughout the year. Bidding wars were rampant, and home prices surged.

As rate hikes locked current homeowners in place, prices remained elevated.

The fine print: While home prices have stabilized to some degree, they are still much higher than they were pre-pandemic.

  • The Nashville-area median sales price was around $450,000 in December 2023, compared to $313,405 in December 2019, per Redfin.

What's next: Experts don't expect the Fed to make interest rate cuts until May or June.

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