As the Fed prepares to potentially reduce rates this month, questions about what will happen to housing prices abound. According to John Chang, SVP of research services at Marcus & Millichap, two factors that have prevented home prices from falling for the past couple of years, are still in play – but single-family housing has been the one bright spot in the tough market.

The first factor is homeowner reluctance to sell their properties because they are locked into a low mortgage rate. This dynamic has shrunk the resale housing market dramatically, said Chang. In addition, higher mortgage rates have thinned the buyer pool and home builders have slowed the pace of new construction to align with reduced buyer demand, resulting in fewer new houses for sale.

The second factor is the pent-up demand, said Chang. The U.S. has been experiencing a housing supply shortage of about 3.5 million homes since 2021. The market has been adding about 1.5 million new housing units per year, but the U.S. population is also growing by about 1.5 million people per year. At the same time, the number of people per household has been getting smaller and the number of single-person households has been increasing.