Apache is functioning normally
Mortgage rates above 7% are further exacerbating the nation’s affordability crisis with many would-be buyers forced to the sidelines.
Home affordability is in a “state of arrested development” for younger buyers, Redfin CEO Glenn Kelman told Yahoo Finance, as higher rates along with rising prices further erode buying power.
This is the main reason millennials are lagging behind their parents’ generation when it comes to buying a home. Last year, fewer than two-thirds of 40-year olds owned a home, compared to 69% of baby boomers at that same age.
“It’s a tragedy… We pulled the ladder up just as millennials were coming of home-buying age,” Kelman said. “Thirty years ago baby boomers owned more than 20% of US national wealth, whereas millennials own less than 10% today.”
The Federal Reserve’s aggressive rate hikes have pushed mortgage rates to a two-decade high, making it more expensive for potential buyers to purchase a home. The rapid jump in rates has also prompted would-be sellers to stay put instead of giving up their low monthly payments, worsening the inventory crunch.
The lack of supply has led to increased competition among buyers for limited housing options— driving home prices back near all-time highs.
The median sale price climbed to $379,975 in August, the biggest monthly increase in ten months, according to Redfin. Meanwhile active listings declined 19% year-over-year, the biggest drop since February 2022.
Economists warn there may be little relief ahead.
“The nationwide housing shortage keeps home prices out of reach for many home buyers, and this along with higher borrowing costs is keeping the outlook for the residential housing market cloudy and gray,” FWDBONDS chief economist Chris Rupkey wrote in a client note. “Unless there is a sudden drop in borrowing costs or home prices, the shortage of homes for sale on the market will not abate.”
No one will be crazy enough to want to trade up in homes if they have to give up their 3% mortgages,” Rupkey added.
A recent Zillow survey found about 80% of mortgage holders have a rate of less than 5%, and almost one-third have a rate of less than 3%, making it less likely they’ll move from their current homes and risk higher monthly payments.
And the sluggish housing market may not regain momentum any time soon. Fed Chair Jerome Powell has repeatedly warned higher interest rates may be necessary to cool inflation, a move that could bring even more pain to the sector.
Kelman predicts the housing market will be in a ‘holding pattern’ through the remainder of the year and into 2024.
“The market is waiting for a break from the Federal Reserve,” Kelman said. “Rates are going to stay around 7% or higher for the rest of the year… and until we get some rate relief, we’re not going to see more inventory.”
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
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Source: finance.yahoo.com