Playing the Long Game: When Will Housing Prices and Mortgage Rates Go Back Down?

Home prices have been steadily increasing over the past few years. Bilanol/Shutterstock

If you’re in the market for a new home right now, you may feel less than confident about your prospects. Housing prices and mortgage rates are both quite high compared to historic averages.

The median home price in the United States is currently around $410,000, which is significantly higher than pre-pandemic levels. Home prices have been steadily increasing over the past few years, although the rate of growth appears to be slowing.

The 30-year fixed mortgage rate is currently around 7 percent. That’s higher than during the pandemic, when rates dropped below 3 percent.

Over the past few decades, the average rate for a 30-year fixed mortgage has ranged between 4 and 6 percent.

Trending Housing Prices

According to recent data, home prices nationwide increased by 3.4 percent year over year in November 2024. That’s less than the previous year’s increase of 5.2 percent, and much less than the year-on-year increase of 8.6 percent in November 2022.

The trend suggests that home prices will grow more slowly in the coming months.

However, regional variations indicate that some areas in the Northeast and Appalachia are still experiencing rapid price growth, while Wyoming, Idaho, Washington, and Hawaii are below their recent peaks.

Meanwhile, Florida—the most popular moving destination in the United States in 2023, and frequently cited as a great choice for first-time home buyers—is making headlines as its once-booming housing prices are falling, due to a combination of factors.

The Sunshine State has seen a notable rise in the number of homes on the market, as property taxes and insurance premiums have been increasing significantly. Exposure to hurricanes and other natural disasters has led to a spike in property insurance premiums. Many homeowners find these costs unaffordable and are forced to sell.

Higher mortgage rates tip the scales to “unaffordable,” when you stir in the higher costs and risks associated with natural disasters, including higher homeowner association (HOA) charges to retrofit older homes and bring them up to code to withstand the forces of nature.

While Florida continues to attract new residents, driven by its strong economy and job opportunities, the median home price is around $430,000. There has been a notable increase in the number of homes for sale, with inventory up 22.5 percent year over year as of November 2024.

What Factors Will Lead to Lower Housing Prices Overall?

Several factors could contribute to a decrease in housing prices

Building more homes, thereby increasing supply, can lead to lower average home prices. While the pace of construction varies by region, in general, more homes are being built.

Recessions—or economic slowdowns—have been forecast for the past several years. If we finally cycle into that softer economic period, the ability to buy homes will decrease as unemployment increases. That, in turn, can provide seller incentives to lower their prices as the “seller’s market” finally shifts into a “buyer’s market.”

New regulations or changes in tax policies related to real estate can also impact housing prices, depending on the significance and direction of these new regulations and changes to home-related taxes.

While they will have a more long-term impact, demographic changes are going to result in home price changes. Retiring, empty-nested boomers as well as deceased homeowners will increasingly mean more homes on the market. The younger generations are not as well represented as the boomer bulge, so fewer potential buyers will mean pressure on housing prices.

Changing interest rates will also mean a change in the overall affordability of homes, so let’s discuss mortgage rate trends next.

Trending Mortgage Rates

As of Jan. 17, 2025, mortgage rates have been trending upward.

The 30-year fixed mortgage rate is 7.11 percent, up 0.08 percent from the previous week, while the 15-year fixed mortgage rate is 6.39 percent, up 0.05 percent from the previous week.

The 5/1 adjustable-rate mortgage rate is 6.60 percent, up 0.05 percent from the previous week, and the 30-year fixed jumbo loan rate is 7.16 percent, up 0.05 percent from the previous week.

Mortgage rates have been rising due to persistent inflation and a strong economy. Rates are tied to the 10-year Treasury bond yield. When these yields rise, mortgage rates tend to follow suit. Ten-year Treasury bond yields have risen fairly consistently over the past few months, from 3.72 percent in September 2024 to 4.61 percent in January.

The demand for mortgage-backed securities has decreased, leading to higher spreads between Treasury yields and mortgage rates. Combined, these factors have resulted in mortgage rates recently climbing above 7 percent.

Patience Will Pay Off

Given the duo of very high housing prices and mortgage rates, if you can wait to buy a home, you would be wise to do so. Better circumstances are likely, taking into consideration all the factors we listed in this article.

Recession, demographics, supply, and several other factors will ultimately switch the “seller’s market” to a “buyer’s market”—a typical behavioral cycle for the housing sector.

Although the income needed to buy a house can vary depending on location, home prices, and other factors, nationally, on average, a household would need to earn around $99,000 to buy a median-priced home of $415,500. That estimate includes property taxes and insurance costs, assuming a 10 percent downpayment.

In some places, however, the required income can be much higher. For California residents, with a median home price of $730,000, the minimum salary needed to comfortably afford a home is around $173,000. In Hawaii, it’s even higher, at $202,200.

Given the increase in home prices, mortgage rates, maintenance costs, property taxes, and HOA fees, the calculus has switched from “owning” to “renting” in terms of overall cost and value. If you’re weighing whether to rent or buy a home today, renting is the more cost-effective option in most major U.S. cities, according to a Bankrate analysis.

In February 2024—the time of the Bankrate analysis—a typical home cost about 37 percent more to buy than to rent, with a typical monthly mortgage payment costing more than a typical rent payment.

By January 2025, that difference was even more striking, with a typical home costing about 45 percent more to buy than to rent. The national median mortgage payment was $2,525, according to Redfin, while the national average rent was $1,592.

Understandably, you still dream of owning that home. But plain and simple, affordability is holding you back from buying your dream house—or any house, for that matter.

At some point, however, the market will flip favorably to those who want to own their own homes.

If you believe, as I do, that patience—and renting—is the best financial choice until this market flips, your patience may turn out to be both a virtue and a big financial relief.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.