Elevated mortgage rates, soaring prices, and a scarcity of available homes have severely impacted the housing market, making it less affordable than it was nearly 16 years ago during the housing bubble, according to experts in real estate and economics. The combination of high rates and low inventory has led to projections that this year could be the worst for home sales since the 2008 housing bubble burst, as stated by the National Association of Realtors.
The current rate of total existing-home sales for 2023 is estimated to be 4.1 million, which would be the lowest since the subprime mortgage crisis of 2008. In contrast, over 6 million homes were sold in 2021. High mortgage rates and escalating home prices are the primary culprits for the decline. Andy Walden, vice president of enterprise research for ICE Mortgage Technology, has calculated that U.S. incomes would need to surge by an improbable 55% for housing to be considered affordable.
The slowdown in home sales began last year, according to Erin Sykes, chief economist at residential real estate brokerage firm Nest Seekers International. The ongoing rise in mortgage rates has discouraged both buyers and sellers. The average mortgage rate has more than doubled since last year, increasing the monthly cost of owning a home and reducing the number of sales.
The “lock-in effect” is another factor slowing down existing-home sales. Homeowners who purchased homes when rates were below 3% during the pandemic are hesitant to re-enter the market with mortgage rates nearing 8%. More than 90% of existing homeowners have mortgage rates below 6%, says Odeta Kushi, deputy chief economist at Fortune 500 financial services company First American.
Prospective buyers are adopting a “wait-and-see” approach, hoping for a drop in mortgage rates. However, many experts believe that mortgage rates are unlikely to decrease in the near future.