Housing issues are complex, but one thing is clear: Buying a home right now is hard. Let me paint a picture for you. Home prices have soared during the pandemic-driven housing boom; more and more people are working from home and can do so from anywhere. Plus, mortgage rates are at historically low levels, so people are buying homes. But then inflation rose, and the Fed raised interest rates to try to curb inflation. Mortgage rates rose as a result, but unlike a typical housing cycle, home prices did not fall. So what do we have? High home prices, high mortgage rates and sluggish home sales. It’s even harder to buy a home if you’ve never owned one before, meaning most younger generations have been hardest hit.
“The problem is, the correction is not a correction; it’s a correction. Prices are up 5%,” Redfin CEO Glenn Kelman told CNBC yesterday. “That’s because interest rates are rising so fast this time, and there’s not yet a recession. ”
He continued, “So a soft landing is good for the U.S. overall, obviously good for the economy, but bad for the housing market because it keeps interest rates high. That’s why there’s not more inventory coming into the market, and that’s Reasons why homes aren’t getting cheaper. Typically, in a market like 2008, you see prices drop 30 to 50 percent and then suddenly buyers are back in the game. But this time, prices are still high. , especially first-time homebuyers are being locked out of the market. Millennials have been waiting a long time to buy a home, but they just can’t catch a break.
But baby boomers who have seen their home values soar, and anyone who bought before or during the pandemic, are generally doing just fine (apart from possibly feeling trapped because they don’t want to lose out on low mortgage rates).
“The housing market has hit rock bottom,” Kelman said. “Four million people are going to move this year; that’s the lowest number we’ve seen in years, and that’s just because interest rates have been so high.
But this year could be better than last year, when existing home sales fell to their lowest point in nearly 30 years. Kelman thinks some people are less likely to delay home buying plans this year “just because they’re living like crazy with their ex-spouse or they’ve got a third kid and there’s no room in the house.” But the overall economic picture of buying a home is still tough.
Danielle Hale, chief economist at Realtor.com, told CNBC on Wednesday that there are now 36% fewer homes for sale than before the outbreak, and because of high home prices and high mortgage rates, buyers need an annual income of more than $100,000 to qualify. Buy a typical home in 34 of the 50 largest metropolitan areas.
Here’s the thing, there’s a little disagreement. As Kelman points out, home prices are falling in places like Florida and Texas because they’re building homes, and he expects that to continue in red states, where it’s generally easier to develop anything. There simply aren’t enough homes for sale in California and New York for prices to fall significantly, if at all. That’s why in California cities, you need to earn over $100,000 to buy a home, while younger generations choose to rent. “That’s why we see homeownership rates in these large markets lagging behind the typical U.S. housing market,” Hale said. “So it’s challenging.”
Although the inventory for sale has improved compared with last year, she said, “the situation is still quite serious for young people.”
Daily mortgage rates fell after rising over the past few weeks. The current average interest rate on a 30-year fixed mortgage is 7.18%. Where mortgage rates go really depends on the state of the economy, especially inflation, which is proving to be stickier than expected. Inflation is so stubborn partly because of the housing problem; It is an important component of the Consumer Price Index. Kelman explained that we’ve seen some softening in the housing component, but not enough to bring rates down.
He’s not keen on predicting what mortgage rates will be at the end of the year. “I’m just trying not to count the chicks before they hatch. We were heartbroken at one point thinking we might get lower rates later this year; Redfin is not betting on that now,” Kelman said.
For her part, Hale said: “I do think we will eventually see inflation slow and mortgage rates come down.”
We’ll have to wait until May 15th to see what inflation looks like, and even longer to see how the Fed reacts.
