The US Housing Market Defies Economic Principles: Supply and Demand

The US housing market is defying the laws of supply and demand, with home prices reaching record highs in May despite a drop in existing home sales and an increase in the supply of homes for sale. Economist David Rosenberg called the situation a “real head-scratcher,” as demand has decreased while supply has risen.

The disconnect in the market can be attributed to regional differences, with some areas like Texas and Florida seeing a decline in home prices due to an increase in supply. Additionally, high mortgage rates, hovering around 7%, have deterred potential buyers and locked in sellers who are hesitant to refinance at higher rates.

Experts believe that the current dynamic of falling demand, rising supply, and increasing home prices is unsustainable. Some predict a major correction in the housing market, while others expect prices to continue rising once the Federal Reserve cuts interest rates.

Barbara Corcoran, a renowned investor, has warned that a decline in mortgage rates could lead to even higher home prices as more buyers enter the market. The future of the US housing market remains uncertain, with potential for both a significant downturn or further price increases.