Home prices aren’t falling anymore.

After declining on a year-over-year basis for five consecutive months—the longest run of declines in 11 years—U.S. home prices rose in July.

The surprisingly quick recovery suggests that the residential real-estate downturn is turning out to be shorter and shallower than many housing economists expected after mortgage rates soared last year.

Scarcity is a big reason. High interest rates have prompted homeowners to stay put rather than buy new homes and take on more expensive mortgages, resulting in an unusually low inventory of homes for sale.

Many potential home buyers have given up their search because mortgage rates recently hit a two-decade high. But the homes that do list often still receive multiple bids, driving up the final sales price.

The result is a market in which the overall volume of transactions has fallen dramatically. Sales of previously owned homes are now down about 36% from January 2022. But prices are generally holding firm outside of a few trouble spots.

The national median existing-home sale price rose 1.9% in July from a year earlier to $406,700, according to the National Association of Realtors. In August, prices in 30 of the 50 biggest markets hit record highs, according to mortgage data and technology company Black Knight.

Sales could keep shrinking in the coming months as mortgage rates hover above 7%, and the housing market heads into the typically slower fall and winter. But even if that happens, prices are unlikely to fall significantly, economists say, because there still aren’t enough homes for sale to meet demand.

“Even in a market where demand has been hammered by higher rates, the supply just isn’t there,” said Diane Swonk, chief economist at KPMG. “Short of a flood in supply, it’s hard to bring these prices down.”

Swonk is one of those who didn’t see this coming. In late 2022, she called for home prices to fall 20% nationally this year. Now, she says, prices are likely to end the year up slightly from last year.

Other economists have also torn up bearish forecasts. A panel of more than 100 economists and housing analysts surveyed by Pulsenomics in March expected home values to fall about 2% year-over-year by the end of 2023. When surveyed again in August, the panel predicted prices would rise 3.3% this year instead.

Stubbornly high prices would likely keep home-buying affordability near its worst level in decades. The NAR housing-affordability index, which factors in family incomes, mortgage rates and the sales price for existing single-family homes, fell to its lowest level in almost 38 years in June.

That month, the total value of U.S. homes rose to $46.8 trillion, a record high, according to real-estate brokerage Redfin.

New listings of homes for sale are so low that bidding wars are still breaking out. Homes sold in July received an average of three offers, according to the NAR, even with overall sales activity shrinking. Active listings in August were 7.9% lower than a year ago and down 46% from August 2019, according to Realtor.com. (News Corp, parent of The Wall Street Journal, operates Realtor.com.)

In many markets, “if you see a house on a Tuesday you like, you more than likely have to put in an offer by Thursday morning at an elevated price,” said Matthew Ricci, a home-loan specialist at Churchill Mortgage in Cranston, R.I. “The overall theme in most of those areas is still limited inventory.”

Katie and Chris Weber discovered that when they moved in the spring from Michigan to Connecticut with their four children. They found a five-bedroom house in Coventry, Conn., that was listed for about $700,000. They beat out competitors by offering $752,000 and agreeing to delay the closing to accommodate the sellers’ schedule, while the Webers lived in a hotel for seven weeks after moving states.

“It was beyond stressful,” Katie Weber said.

Her parents, George and Ann Media, moved to Connecticut around the same time and lost out on seven offers to buy homes before having their eighth accepted.

“We had to overbid,” George Media said. “We lost houses by a hundred grand. It’s absolutely nuts.”

Financial conditions help explain the lack of inventory. Mortgage-lending standards have tightened since the 2008-09 financial crisis, and homeowners can largely afford their monthly payments. Most also have equity in their homes due to price appreciation.

Most homeowners have also locked in a low mortgage rate, and the gap between what they pay now and what they would pay for a different home is too big for many to justify making a move.

The average principal and interest payment for homeowners with a mortgage was $1,355 in June, Black Knight said. The median payment for those buying a home with a 30-year fixed-rate loan in July, by contrast, was $2,306.

Federal Reserve Chair Jerome Powell in August cited the housing market’s strength as a sign that the economy might not be slowing as much as expected.

“After decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up,” Powell said in a speech in Jackson Hole, Wyo.

Price declines have been most significant in Western markets that were already expensive, such as Seattle, and in cities that grew quickly during the pandemic, such as Austin, Texas.

Prices are still down on a year-over-year basis in 14 of the country’s 50 biggest markets, led by Austin, where prices fell 11.9% in August from a year earlier, according to Black Knight. But on a national basis, prices rose 2.3% year-over-year in August, Black Knight said.

Even in Seattle, “you did not see the prices drop as much as people were expecting,” said real-estate agent Junior Torres. Seattle home prices soared 314% from January 2000 to their peak in May 2022, and slid 10.5% between May 2022 and June 2023, according to S&P Dow Jones Indices.

The market isn’t as competitive as it was in 2021, when rates were low, Torres said. But buyers still often vie against one or two other bidders and need to pay above the list price to win, he said. “I probably have close to 20 buyers that are just on standby,” he said. “They have not been able to find anything.”

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