Why House Prices Will Stop Rising This Summer

May 03, 2021

Let’s look at the metro Phoenix housing market, the market with the largest home price increases in the United States for almost 2 years.

Phoenix has a very strong trend for house prices to peak each year in June (late summer in most other markets).
Vacation home sales fall a lot in the summer in Phoenix and second home sales have been an important part of the Covid market demand.
Mortgage interest rates aren’t falling anymore and aren’t pushing up house prices anymore.
The changes in demand caused by Covid – and in what people want in houses – are over. Demand isn’t increasing anymore.
Prices are already up a ton. The summer market seems more sensitive to prices.
The eventual ending of mortgage forbearance will increase the number of houses for sale. Even if the number of houses for sale is still very low, inventory that is low and increasing is a very different animal than inventory that is low and falling.

The market is still manic and house prices are deep into a self-reinforcing upward spiral. Many buyers now expect prices to continue to go up fast so they’re willing to pay more if they’re able to pay more.
Changes in demand caused by Covid may not be changing anymore but the market is still adapting to the past changes in demand.
Mortgage rates may not be falling anymore but the large fall in mortgage rates during 2019 and 2020 will continue to have an impact on housing prices for many months to come (although the impact of those 2019 and 2020 declines will diminish as time goes on).
In June, home prices adjusted for inflation and mortgage rates will be similar to the top of the S&L Bubble but will not be nearly as high as the 2005 bubble so there may be more room for prices to boom.

Click on graphs to go to the full-size, interactive versions.