The median home price in the United States just surpassed $400,000 for the first time at the end of October, according to the St. Louis Federal Reserve.

The median home price in the third quarter of this year went up to $404,700. That represented a 13% jump from the third quarter of 2020. At that time, the median sales price was $358,700.

Factors contributing to the eye-popping number include a lack of inventory and high demand.

Goldman Sachs recently released an analysis indicating they see home prices rising another 16% by the end of next year. Economist Jan Hatzius said the housing shortage might last the longest compared to all other pandemic-related shortages. Hatzius said currently Goldman doesn’t see a crash being very likely.

Housing Shortages

Throughout the pandemic, there have been low mortgage rates. Other factors are part of the mix, like people moving from urban areas to suburbs and younger people buying their first homes.

The latest forecast from Fannie Mae indicates an expected rise of 7.9% in home prices between Q4 2021 and Q4 2022.

Morgan Stanley released a recent note saying they believe the U.S. needs as many as 1.5 million more homes to regain a sense of normalcy. The availability of real estate is three years behind based on their analysis.

Strategists at Morgan Stanley wrote the housing shortage is meaningfully contributing to the record real estate appreciation currently being seen. While it’s unlikely based on current trends there will be an excess supply any time soon, the contraction pace of the supply does appear to be slowing.

Could the Housing Market Be Headed Toward a Cooldown?

While prices are likely going to keep going up, with inventory remaining behind, some signals that a slowdown at least in monthly price growth could be on the horizon. Many housing experts say they expect price growth to start to slow somewhat through the end of 2021. 2022 might see more significant pricing slowdowns.

While housing inflation seems to be stalling a bit or plateauing, it remains five times higher than before the pandemic.

Supply Chain Bottlenecks

The limited supply of homes is complex, and another issue in the industry is the supply chain bottlenecks affecting builders. They’re having a hard time keeping up with the items they need, which is also paired with a labor shortage.

Increasing Mortgage Rates

The average mortgage rate for a 30-year fixed-rate loan did go up ten basis points in August to 2.87%. There aren’t signs that the trend is going to slow or reverse any time soon, and that does hamper buyers’ ability to raise their offers in bidding wars.

Seeing what’s going on in the market, many homeowners are holding onto their properties rather than selling, with the worry they wouldn’t be able to buy something new. That’s putting a further squeeze on inventory.

So, what does all this mean? Home prices are likely to remain elevated for the foreseeable future, and inventory will stay limited as well. However, there might be at least some slowdown in how quickly home prices are accelerating.