• April 14, 2024

Home Prices Have Massively Fallen, But There’s A Horrible Reason Why….

In the past year, we’ve seen the housing market take a sharp turn, with median home prices falling year-over-year for the first time since 2012. But before we break out the champagne, let’s not get too excited. Elevated mortgage rates are still making it difficult for many prospective buyers to afford a new home.

According to Redfin, the typical home in the United States sold for around $350,200 in February 2023, marking a 0.6% decline since the same month last year. However, the typical monthly mortgage payment has surpassed $2,500 as interest rates rise across the economy.

Redfin Deputy Chief Economist Taylor Marr says that this decline in prices was not surprising, and in many ways, it was welcome.

“Home prices skyrocketed so much over the last few years that they were likely to come down once rates rose from historic lows. Mortgage rates rising to the 7% range was the straw that broke the camel’s back, dampening homebuying demand and leading to sellers asking less for their home,” Marr explained.

The rates for a 30-year fixed mortgage approached 6.7% as of March 2023 after nearing 7.1% in November 2022, according to data from government-backed mortgage company Freddie Mac. Mortgage rates generally remained below 3% during the lockdown-induced recession but started to rise as the Federal Reserve hiked the target federal funds rate to combat inflationary pressures, thereby applying upward pressure to interest rates.

According to data from the Department of Housing and Urban Development, median home sale prices previously increased from $322,600 in the second quarter of 2020 to $467,700 in the fourth quarter of 2022. However, costs plateaued in the second half of last year as mortgage rates soared.

Homeowners who acquired mortgages at low rates over the past several years have reason to avoid selling their properties, a phenomenon which could further limit the number of houses on the market and decrease affordability for buyers. Redfin noted that mortgage applications have now declined to their lowest levels in three decades.

“Prices will probably decline a bit more in the coming months, but first-time buyers hoping to score a major deal this year are likely out of luck,” Marr continued. “That’s because so few homeowners are listing their homes for sale. Limited inventory and continued interest in turnkey homes in desirable neighborhoods will keep prices somewhat propped up, and high rates will continue to be a hit on affordability.”

However, the housing market had witnessed a shortage of 3.8 million houses as of 2019, according to data from the government-backed mortgage company Fannie Mae. The National Association of Realtors estimates that homebuilders should have constructed between 5.5 million and 6.8 million more houses over the past two decades to match current demand.

Members of the Senate Banking Committee drew attention to the phenomenon during their first hearing of the new Congress last month, calling for federal action to remove barriers that prevent home construction.

“There just isn’t enough quality housing at prices that people can afford,” Sen. Sherrod Brown (D-OH) said in his opening statement. “And because there aren’t enough homes, renters, and homeowners are stuck paying more every month or living with peeling lead paint or leaks.”

The decline in home prices is good news, but it doesn’t mean that the housing crisis is over. High mortgage rates and limited inventory are still making it difficult for first-time buyers to purchase a home, and federal action is required to remove the barriers that prevent home construction.

Sources: DailyWire, Redfin

 

The Daily Allegiant