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Speaking at a National Association of Realtors conference in Florida last week, association Chief Economist Lawrence Yun says American home prices aren’t likely to drop by significant amounts despite the big drops in demand.

The key, Yun said, is that the supply of new listings is staying at rock-bottom levels in most markets.

“Housing inventory is about a quarter of what it was in 2008,” Yun said according to a statement provided by NAR. “Distressed property sales are almost non-existent, at just 2 percent, and nowhere near the 30 percent mark seen during the housing crash. Short sales are almost impossible because of the significant price appreciation of the last two years.”

This adds up to highly restrictive local market conditions in most parts of the country, which are supporting prices from falling despite many buyers’ disappearance from the market thanks to high mortgage rates and big home-price jumps in the last two years. Yun said he expects the number of homes sold next year to be 7 percent lower than this year’s tallies, but does not expect to see a nationwide price decline bigger than 1 percent – cautioning that some markets could see bigger declines.

With average interest rates having risen from less than 3 percent at the start of the year to around 7 percent today, many would-be sellers are holding off listing because they either have an ultra-low mortgage thanks to the pandemic refinance boom, they cannot afford to buy the property they need at today’s inflated mortgage rates and prices or some mixture of the two, experts say.

Hope could be on the horizon, Yun said, with signs pointing to a topping-out of mortgage rates and October’s Consumer Price Index report suggesting that inflation is easing – reducing pressure on the Federal Reserve to continue its aggressive interest-rate hikes. Still, the spread between mortgage interest rates and the Federal Reserve’s benchmark interest rate is worrying, he said.

“The gap between the 30-year fixed mortgage rate and the government borrowing rate is much higher today than it has been historically,” Yun said. “If we didn’t have this large gap, mortgage rates wouldn’t be 7 percent, they would be 5.8 percent. A normal spread would revive the economy. If inflation disappears, then we’d see less anxiety within the financial markets and lower interest rates, which would allow owners to refinance.”