US home prices rose 6.2 percent year-over-year in April, confounding predictions that 7 percent mortgage rates would force meaningful price declines. The persistence of high prices reflects a fundamental supply shortage that interest rates alone cannot cure. Existing homeowners with sub-3 percent mortgages are refusing to sell and give up their locked-in rates, severely limiting available inventory.
New home construction is providing some relief, with builders reporting strong traffic despite higher prices as buyers who cannot find existing homes turn to new construction. However, production volumes remain well below the estimated three million unit shortfall that analysts say has accumulated over the past decade of underbuilding. Without a meaningful increase in supply, the market is likely to remain unaffordable for first-time buyers even as rates eventually fall.
