: How does the housing market work? What will it take for the interest rates to drop? Is there any hope in sight?
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The housing market works like most markets: price is determined by supply and demand. If there is limited supply and high demand, prices go higher. If there is tons of supply but hardly any demand, prices go lower. Unlike most other markets, demand (and to some extent supply) depends on interest rates, since most people buying homes need loans, and those loans are subject to interest rates. Dropping interest rates is actually really easy. In the US, the federal reserve sets interest rates and banks loan a little higher than they can borrow. If the federal reserve drops interest rates, the rates at the banks drop. The federal reserve is worried about inflation though, so that’s why they have raised rates. It does appear that the raising of rates is working to reduce inflation and we can expect them to keep them steady or drop them if inflation cools off more. The problem with the current housing market is that people who got low interest rates a couple years ago know that it would cost a lot more to borrow today, so they aren’t selling. That reduces the supply. Demand is steady in most places. So prices aren’t dropping much (and are increasing in some parts of the country). You would expect that to change over time because a lot of the time, people don’t have a choice about moving, but for now people are keeping their homes with low interest rates and builders are pretty cautious because of the high interest rates making it more expensive for people to buy a house.
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