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A drop in interest rates makes the same house more affordable, which means buyers can bid it up to a higher level and keep the same payment amount as the current rates.
Lots of buyers are also sitting on the sidelines right now “waiting for rates to come down”, so when they do drop, there will be more buyers and not necessarily more sellers, which will bring higher prices as well.
Lots of sellers are also locked in on low rates (don’t want to sell as their new rate will be a lot higher). If rates go down, demand will rise but supply may also rise.
I'm in HR and teach economics, yes this could occur. If rates drop, people may (read MAY, not will) jump back into the market to buy. The entry level for real estate is very tight right now as people are staying in homes longer due to low purchase rates (under 4% if bought in 2021 for example). What is happening is the overall market is seeing more and more listings (supply), but not at the entry level which creates two separate markets. One which will push prices up at entry level and the other that will either be flat or even drop on the higher end. Either way, prices will be pulled up by the metric we use - median home price.
This is a compelling argument, may I ask where do you get the data of inventory changes in high end market and low end market? As opposed to it all being lumped together by metro?