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In late October 2023, existing-home sales plummeted to the lowest level since 2010, when the world economy, and particularly the U.S. housing market, were struggling to pull out of the Great Financial Crisis. This signaled a frozen housing market<\/a>, in which fewer homes were changing hands because of sky-high home prices and mortgage rates that peaked at 8%<\/a>.<\/p>\n The rise in mortgage rates made the housing market \u201cdepressed\u201d and \u201cmore unaffordable,\u201d Gary Shilling, an economist best known for correctly forecasting the 2008 housing crash, said in a recent Retirement Lifestyle Advocates<\/em> podcast<\/a>. Not only could new homeowners not afford to break into the housing market, but fewer existing homeowners wanted to let go of the 3% mortgage rates they had\u2014a phenomenon known as the lock-in effect.<\/p>\n \u201cThey don\u2019t want to sell their houses and move to another house because they\u2019d have to take out a mortgage at more than twice the yield on their current mortgage,\u201d Shilling said. \u201cYou have this really odd situation of high mortgage rate, yet shortage of housing inventories. It\u2019s an anomaly.\u201d<\/p>\n Before the 2008 crash, Shilling\u2014considered a housing-market prophet\u2014warned that subprime loans were probably the \u201cgreatest financial problem\u201d for the\u00a0U.S. economy, and in January 2006 wrote an article titled \u201cThe Housing Bubble Will Probably Burst.\u201d He now serves as president of financial consultancy A. Gary Shilling & Co. Inc. and as editor of A. Gary Shilling\u2019s Insight<\/a>, a monthly newsletter that promises \u201cexhaustive investigations of key economic indicators\u201d and how they affect investment portfolios.\u00a0<\/p>\n While mortgage rates have slightly eased from their October 2023 peak, they\u2019re still hovering around 7%<\/a>\u2014and there\u2019s no telling when they\u2019ll drop by a meaningful amount. Other housing experts and economists have predicted mortgage rates will stay in the 5% to 6% range for the next couple of years, but meaningful change isn\u2019t \u201cgoing to happen overnight,\u201d Shilling said.\u00a0<\/p>\n \u201cI think over the next three or four years we\u2019ll probably see a considerable revival in housing activity,\u201d Shilling said. \u201cIt is going to take time.\u201d<\/p>\n When it comes down to it, the housing market is all about a supply-and-demand game. With so few houses on the market, competition increases\u2014ultimately driving up home prices.\u00a0<\/p>\n \u201cLack of supply is the main factor driving prices ever higher,\u201d Marc Norman<\/a>, associate dean of NYU\u2019s Schack Institute of Real Estate<\/a>, tells Fortune<\/em>. \u201cWe really need interest rates to fall along with construction pricing as well as additional available land either through densification or zoning changes. We are starting to see all of these things happen, but it will take a while for this to create the new supply needed.\u201d<\/p>\n Even still, a housing market revival will be more \u201cgeographically specific,\u201d Norman predicts.\u00a0<\/p>\n \u201cMarkets won\u2019t truly recover in terms of increased supply until interest rates come down and jurisdictions modify zoning, codes, or incentives to speed construction or lower costs,\u201d Norman says. \u201cWe are starting to see those changes have an impact in places like California\u2014builder\u2019s remedy<\/a>, ADUs<\/a>, and elimination of single-family zoning,\u201d he says, as well as other affordability programs in Florida.<\/p>\n But \u201cother places like New York will struggle as legislation is held up by suburban politicians.\u201d This is a nod to a famous phrase in housing circles, \u201cnot in my backyard\u201d where homeowners block development in their neighborhoods.\u00a0<\/p>\n \u201cNIMBYism is real<\/a>, and failing to secure buy-in from the community adds time, cost, and uncertainty,\u201d Tom Barkin, president of the Federal Reserve Bank of Richmond, said in a mid-November 2023 speech. \u201cHow do leaders rally their communities? They articulate the case for housing.\u201d<\/p>\n Gerard Splendore, a broker with Coldwell Banker Warburg, says that the housing market isn\u2019t \u201cfrozen solid, but perhaps sluggish in reaction to concerns about the economy,\u201d arguing that higher mortgage rates and home prices may be something we need to get used to.\u00a0<\/p>\n \u201cAs the economy remains in a holding pattern, in anticipation of lowered interest rates, the presidential election, and the war [and other] conflicts, the more it becomes the \u2018new normal,\u2019\u201d Splendore tells Fortune<\/em>. \u201cBuyers and sellers of real estate accept what is taking place around them and move forward\u2014or not\u2014in the face of their own needs.\u201d<\/p>\n Other housing market experts also say there\u2019s more to the frozen housing market than meets the eye. The primary issue facing the housing market today is low inventory levels and three years of pent-up demand, Dan Green, CEO of Homebuyer.com, tells Fortune<\/em>.\u00a0<\/p>\n \u201cThe biggest issue with the housing market is that there aren\u2019t enough houses,\u201d Green says. \u201cThe market isn\u2019t frozen. The shelves are bare. There\u2019s a huge imbalance of buyers vs. sellers.\u201d<\/p>\n<\/div>\n\nWhat other housing experts say about the frozen housing market<\/h2>\n
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