It’s worth talking about the raging housing crisis plaguing the United States.
In the current real estate market, who has the means to buy a residential property? Mortgage rates are at their highest point in almost 20 years, home prices have increased significantly since the start of the coronavirus epidemic, and new housing development activity has yet to return to its pre-2006 subprime crash levels. To put it simply, there is a severe housing crisis in America, and it is uncertain when things will get better.
The Housing Crisis Dollars and Cents
The median sales price for homes sold in the second quarter of 2023 was $416,100, according to the US Department of Housing and Urban Development. Compared to the previous year’s record high of $480,000, this is significantly lower. However, since the start of the coronavirus pandemic, property values have increased 30%.
The difficulty of financing the biggest purchase you will make in your lifetime has grown to be almost unsolvable. The 30-year fixed-rate mortgage averaged 7.09% for the week ending August 17, according to new statistics from Freddie Mac, which is the highest level since April 2002. According to a different statistic from the Mortgage Bankers Association, the rate is at a 22-year high of 7.16%. The 30-year fixed-rate mortgage was 5.13% at the same period last year. With the ten-year Treasury yield recently rising to a 16-year high and the Federal Reserve indicating that additional tightening may be necessary owing to “significant upside risks to inflation,” mortgage rates may have more opportunity to rise going into the 2024 housing market.
A $416,100 home, a 20% down payment, and a 7.09% 30-year mortgage will result in a monthly payment of $2,235 for the homeowner. Comparatively, a homeowner in December 2019 with an average home price of $327,100, a 20% down payment, and a rate of 3.78% spent $1,216 each month on housing. Therefore, purchasers will need a family income of over $115,000 to afford a property in today’s real estate market; the median salary was slightly over $56,000 last year.
Supply is the Challenge
The imbalance between supply and demand is one of the main issues with the current housing crisis. The nation is not building enough homes, and homeowners are not listing their properties. Along with rising interest rates, the scarcity of stocks and the decline in existing home sales in four of the first six months are deterring consumers from investing in real estate.
According to Redfin, only 1% of all US houses changed hands in the first half of 2023, the lowest number in ten years. About 14 out of every 1,000 existing properties were transferred from January to June, down from 19 during the same period in 2019. Simply put, mortgage rates are extremely high, inventories are low, and there are fewer for-sale signs on the market. Indeed, why would families increase their monthly mortgage payments by two or even three times if they bought a home at a bargain price.
“By locking up inventory and driving up the price of the properties that do eventually hit the market, the rapid spike in mortgage rates creates an uphill battle for many Americans who want to buy a home. The typical home is selling for around 40% more than it did prior to the epidemic, according to Taylor Marr, Redfin’s deputy chief economist.
Since their post-pandemic peak, housing starts have been trending downward and have remained well below their levels from that year. In addition, a June 2023 survey by the National Association of Realtors revealed that there aren’t enough homes in the US in price ranges that middle-class families can afford. As the population increases and housing costs continue to rise, the housing scarcity is anticipated to worsen.
The Housing Recession
The finest recent statement was made by Lawrence Yun, chief economist for NAR: “The housing crisis is essentially over.” Price growth has resumed after last year’s decline, which was caused by the Federal Reserve’s tightening cycle. This is wonderful news for homeowners. This is sad news for those compelled to watch from the sidelines. The head of the mortgage company New American Funding, Rick Arvielo, was direct in his assessment of the state of the housing market: “You’re not going to see house values decrease. Simply said, there is not enough stock. While Generation Z and Millennials may be looking for a crash similar to that of 2006, with fewer opportunities, any decline could end up being a whimper.