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, in which fewer homes were changing hands because of sky-high home prices and mortgage rates that peaked at 8%.
The rise in mortgage rates made the housing market “depressed” and “more unaffordable,” Gary Shilling, an economist best known for correctly forecasting the 2008 housing crash, said in a recent Retirement Lifestyle Advocates podcast. 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—a phenomenon known as the lock-in effect.
“They don’t want to sell their houses and move to another house because they’d have to take out a mortgage at more than twice the yield on their current mortgage,” Shilling said. “You have this really odd situation of high mortgage rate, yet shortage of housing inventories. It’s an anomaly.”
Before the 2008 crash, Shilling—considered a housing-market prophet—warned that subprime loans were probably the “greatest financial problem” for the U.S. economy, and in January 2006 wrote an article titled “The Housing Bubble Will Probably Burst.” He now serves as president of financial consultancy A. Gary Shilling & Co. Inc. and as editor of A. Gary Shilling’s Insight, a monthly newsletter that promises “exhaustive investigations of key economic indicators” and how they affect investment portfolios.
While mortgage rates have slightly eased from their October 2023 peak, they’re still hovering around 7%—and there’s no telling when they’ll 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’t “going to happen overnight,” Shilling said.
“I think over the next three or four years we’ll probably see a considerable revival in housing activity,” Shilling said. “It is going to take time.”
What other housing experts say about the frozen housing market
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—ultimately driving up home prices.
“Lack of supply is the main factor driving prices ever higher,” Marc Norman, associate dean of NYU’s Schack Institute of Real Estate, tells Fortune. “We 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.”
Even still, a housing market revival will be more “geographically specific,” Norman predicts.
“Markets won’t 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,” Norman says. “We are starting to see those changes have an impact in places like California—builder’s remedy, ADUs, and elimination of single-family zoning,” he says, as well as other affordability programs in Florida.
But “other places like New York will struggle as legislation is held up by suburban politicians.” This is a nod to a famous phrase in housing circles, “not in my backyard” where homeowners block development in their neighborhoods.
“NIMBYism is real, and failing to secure buy-in from the community adds time, cost, and uncertainty,” Tom Barkin, president of the Federal Reserve Bank of Richmond, said in a mid-November 2023 speech. “How do leaders rally their communities? They articulate the case for housing.”
Gerard Splendore, a broker with Coldwell Banker Warburg, says that the housing market isn’t “frozen solid, but perhaps sluggish in reaction to concerns about the economy,” arguing that higher mortgage rates and home prices may be something we need to get used to.
“As 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 ‘new normal,’” Splendore tells Fortune. “Buyers and sellers of real estate accept what is taking place around them and move forward—or not—in the face of their own needs.”
Other housing market experts also say there’s 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.
“The biggest issue with the housing market is that there aren’t enough houses,” Green says. “The market isn’t frozen. The shelves are bare. There’s a huge imbalance of buyers vs. sellers.”
This story originally Appeared on Fortune
