As Inflation Cools, Expect A More Competitive Housing Market

Now that inflation is waning, there is hope that mortgage rates will fall to 5% in 2024. These lower rates would make borrowing to buy a home less expensive, but they could make the housing market much harsher for first-time homebuyers. That’s because a drop in mortgage rates would cause an increase in demand, and more demand without more supply is a recipe for competition. Like in 2021, we could see a spike in bidding wars, with the typical home selling above its asking price in record time. First-time buyers should prepare for a challenging road ahead as inflation dies down.

Inflation has held the housing market back

Inflation primarily affects homebuyers through mortgage rates. When mortgage rates increase, buyers must make higher monthly mortgage payments to afford the same-priced home. Inflation alone can increase mortgage rates. And the Fed’s tools against inflation also impact mortgage rates.