Mortgage rates may be dropping, but the housing market isn’t showing any signs of revival. Nick Gerli, CEO of Reventure App, shared a compelling observation on social media that highlights a growing dissonance between sellers’ expectations and buyers’ reluctance. With rates for 30-year fixed mortgages dipping to 6.20%, logic might suggest that potential homebuyers would return in droves. Instead, mortgage applications are still at multi-decade lows, pointing to a more fundamental issue: it’s the high prices that are keeping buyers at bay, not just interest rates.
A recent poll conducted on Gerli’s YouTube channel asked viewers whether lower mortgage rates had made them more inclined to buy. Out of 5,000 votes, an overwhelming 91% responded that the drop in rates hadn’t swayed them. This reflects a broader sentiment captured by the University of Michigan, which has been measuring American attitudes toward home buying for over 40 years. The data reveals that in 2024, homebuyer sentiment has hit rock bottom, with 87% of Americans believing it’s a bad time to purchase a home—worse even than in the early 1980s when mortgage rates soared to 18%.
Historically, the average percentage of people who thought it was a bad time to buy sat at just 31%, making today’s negative sentiment unprecedented. Homebuyers are disillusioned, and a modest drop in mortgage rates simply isn’t enough to bring them back into the market. What’s needed is a correction in home prices, which have remained stubbornly high even as demand has dwindled.
There’s a common belief among housing market observers that the current situation might echo the 1970s and 1980s. Back then, despite rampant inflation and significant affordability challenges, home prices continued to rise. But Gerli suggests that this time is different. Demand has collapsed not only because of affordability issues but also because of widespread buyer dissatisfaction with the inflated market itself.
The housing bubble we’re in right now, adjusted for inflation, is the largest ever recorded. Gerli points out that over 134 years of home price data show we’ve never experienced a bubble this big. From 1890 to 1990, inflation-adjusted home prices rarely deviated more than 20% above long-term trends. Then, everything changed in the 2000s. The shift can be traced to actions taken by the Federal Reserve, particularly under the leadership of Alan Greenspan. When interest rates were slashed to 1% in the early 2000s, it set off a housing boom that continued for the next two decades.
Additionally, aggressive monetary policies, including quantitative easing following the 2008 financial crisis and the economic measures taken during the pandemic, fuelled rapid home price growth. This created a perfect storm, where low interest rates and abundant liquidity drove prices up far beyond historical norms. Now, however, those policies have been reversed. The Federal Reserve is no longer printing money, its balance sheet is shrinking, and interest rates are no longer artificially low. As a result, the housing market finds itself in a precarious position.
Sellers, however, are holding on. Despite a drop in demand, they remain reluctant to reduce their prices. In 2024, American homeowners are sitting on a staggering $32 trillion in equity—more than double the amount during the peak of the 2006 housing bubble. With so much equity, sellers could easily afford to reduce prices and still make a profit, yet many are choosing not to. Gerli predicts that as the buyer strike continues, more sellers will eventually have no choice but to lower prices, which could help the market re-stabilise. But for now, many sellers are holding on to the idea that their home is worth as much as it was two years ago, despite the drastic changes in market conditions.
The situation is a classic stand-off: buyers aren’t willing to pay the inflated prices, and sellers aren’t ready to let go of their equity. The question remains: who will blink first? Sellers have a significant buffer in the form of their equity, while buyers are increasingly priced out of the market, with many unable even to qualify for mortgages.
There’s another variable that could drastically change the landscape: a potential recession. Right now, the unemployment rate is relatively low, and mortgage defaults haven’t spiked. But if the economy worsens and unemployment begins to rise, forced selling could become a major issue. Homeowners who are struggling financially may be compelled to sell, adding more inventory to the market and pushing prices down. There’s a strong historical correlation between rising unemployment and higher mortgage default rates. While neither is at alarming levels yet, both are trending upwards, suggesting that some economists may be underestimating the risk of a significant downturn in the housing market.
Gerli warns that forced selling could flood the market with homes, leading to a sharp drop in prices. This is especially true in regions where investor ownership is high. Across the United States, around 24 million homes are owned by investors, many of whom are now facing stagnant rental incomes and rising costs. A small portion of these investors may decide to sell, which could further drive down prices.
Real estate trends vary by region, and certain parts of the country are more vulnerable than others. The Sun Belt and Mountain West, for example, have seen high levels of investor activity and overbuilding, making them more susceptible to price declines. Meanwhile, regions like the Northeast and Midwest, where there has been less speculative investment and new construction, are less likely to experience significant price drops.
The future of the housing market remains uncertain, but one thing is clear: the stand-off between buyers and sellers can’t last forever. Eventually, something has to give. Whether it’s the gradual erosion of seller resistance as the buyer strike drags on, or a sudden economic shock that forces sellers to lower their prices, the current state of the market is unsustainable.
As Gerli’s observations suggest, it’s no longer just about mortgage rates; the real issue is the disconnect between what buyers are willing to pay and what sellers want. The longer this standoff persists, the more likely it is that prices will have to come down, rebalancing the market and finally giving buyers a reason to re-engage. Until then, the housing market remains in a state of flux, with no clear resolution in sight.
