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Federal Reserve Chairman Calls Housing Boom a Passing Phenomenon

by Maurie Backman | Feb. 4, 2021

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

A woman kissing a man on the cheek while he holds up house keys.

Image source: Getty Images

Are inflated home prices here to stay? One expert thinks not.

There's a reason prospective home buyers have been walking away discouraged over the past few months. While mortgage rates have been sitting at or near record lows since summertime, home prices have soared. In December 2020, the median price of a home sold was $309,800, which represents a 12.9% climb from December 2019.

Low mortgage rates, coupled with low housing inventory, have fueled a surge in home-buyer demand. But Federal Reserve Chairman Jerome Powell says that the current housing market situation is downright unsustainable, and that the market is likely to calm down in the near term.

In 2020, there were 5.64 million homes that sold, an increase of 5.6% from 2019. The supply of available homes was also at a 22-year low as of December of 2020.

If you've been trying to navigate the housing market and have struggled thus far, it could pay to step back, wait a few months, and try again. You may have a much easier go at it once things do, in fact, cool off.

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Why it pays to wait on a home purchase

Limited housing inventory works against buyers in a couple of ways. First, it drives up demand, which results in higher prices. Secondly, it puts buyers in a position where they're more likely to have to compromise on the features they want in a home.

Imagine your target housing market normally has 25 to 30 starter homes available at any given time. If, right now, you're looking at five homes up for sale, you're apt to feel a lot more squeezed. Even if you're looking at a higher-end home, you may not find all the amenities you want if you're limited to just a handful of homes. But if you sit tight, you may have a much easier time finding the right home to buy later this year.

Once buyers start to realize that low mortgage rates are probably here to stay for a while, they're apt to halt the practice of outbidding each other for available homes. That should help bring prices down. Furthermore, once things improve on the pandemic front, more sellers are likely to start listing their homes. That should help open up inventory which will, in turn, help prices come down as well.

All told, there's really no need to rush to buy in today's inflated, overly competitive housing market. So unless you have a personal reason for purchasing a home in the very near future (say, your lease is running out and you can't renew it, and you don't want to sign a new one and have to move several times), it pays to wait until at least spring and see how the market is doing then. Spring is also, historically speaking, a time when inventory tends to pick up across the board. So that alone might be an improvement over current market conditions.

Either way, if you've had a hard time with your home search, you're in good company. And you can also take comfort in the fact that buying a home should get easier as 2021 progresses.

A historic opportunity to potentially save thousands on your mortgage

Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase. 

Our expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See our full advertiser disclosure here.

About the Author

Maurie Backman
Maurie Backman icon-button-linkedin-2x

Maurie Backman is a personal finance writer who covers everything from savings to retirement to healthcare. Her articles have appeared broadly on major outlets such as CNBC, MSN, and Yahoo.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

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