Housing Market Woes: The current state of the housing market is far from welcoming for prospective homebuyers, and the near future doesn’t promise much respite. We’re seeing mortgage rates inching closer to a staggering 8%, home prices relentlessly climbing for the past three months, and the supply of homes on the market hitting historic lows for September. It’s a grim scenario for anyone looking to purchase a house, and it’s been steadily deteriorating over the past two years.
As it stands, the average 30-year fixed-rate loan is perched at 7.63%, making it necessary to shell out $2,528 each month for a median-priced home with a 20% down payment. This marks a jaw-dropping 91% increase from just two years ago, adding a hefty $1,204 to your monthly housing bill.
To put this into perspective, the monthly payment for an average-priced home now gobbles up 40% of the median household income, plunging housing affordability to its lowest point since 1984, according to ICE Mortgage Technology.
Also Read: Rapid Long-Term Interest Rate Changes: Implications for Financial Markets
“The last time home affordability was this tight, interest rates were at 13.6% roughly 6 points higher than today and the average home price was about 3.5 times the median household income,” notes Andy Walden, vice president of enterprise research at ICE Mortgage Technology. “Today, after years of low interest rates helping to drive purchase prices up, the average home costs six times the median income.”
Bringing affordability back to long-term averages would require a combination of up to a 37% drop in home prices, a 4-point nosedive in mortgage rates, or a substantial 60% boost in median household incomes.
However, even if mortgage rates do spike to 8%, it won’t dramatically worsen the situation for buyers. That’s partly because the housing market is already unaffordable. A household with median income and a 10% down payment in August would have poured almost 40% of their income into mortgage payments. To bring that down to the recommended 30% threshold for affordable housing, the median household income would need to climb to nearly $107,000. Unfortunately, the median household income was $74,580 in 2022, as per the US Census Bureau.
Nicole Bachaud, senior economist at Zillow, doesn’t see a drastic change in the housing market even with rates exceeding 8%. But with a robust labor market and the Fed rate cuts pushed further into the futurepotentially into the third quarter of 2024this level could persist for some time, suggests John Toohig, head of whole loan trading at Raymond James.
So, how long can the housing market maintain its strength, and how much longer can potential homeowners defer their purchases?
For much of this year, we’ve been seeking good news on how we can endure “higher for longer” rates without witnessing a market upheaval, but it’s a delicate balancing act. The situation depends on numerous factors, and it’s an intricate puzzle to solve.
Our Reader’s Queries
Will housing market crash with recession?
In times of recession or when interest rates are high, the demand for homes tends to decrease, which can lead to a decline in home prices. Although the cost of financing a home may increase during these periods, the value of homes may actually come down. According to Miller, this is a common trend that occurs when the economy is struggling.
What year was the worst housing market?
The subprime mortgage crisis was triggered by a real estate bubble in several areas. Housing prices hit their highest point in early 2006, but began to decline in 2006 and 2007, ultimately reaching their lowest point in 2011. The Case-Shiller home price index recorded its biggest price drop ever on December 30, 2008.
What is the Florida housing market doing?
The Florida housing market saw a 3.5% increase in home prices in November 2023, with homes selling for a median price. The number of homes sold also rose by 2.9% compared to the previous year, with 26,001 homes sold in November 2023. This marks a significant increase from the 25,258 homes sold in November 2022.
What does a crash in the housing market mean?
In the event of a housing market crash, the worth of a home takes a hit, leading to a decrease in its value. This, in turn, prompts sellers to lower their asking prices in a bid to attract potential buyers.