With mortgage rates floating up to 7.5% and fewer buyers chasing fewer properties, real estate experts are skeptical that things will get better anytime soon.
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The U.S. residential real estate market “is at rock bottom,” said Redfin chief executive officer Glenn Kelman on Barron’s Live earlier this week. “Sales volumes couldn’t be worse. The only people moving right now are the ones who absolutely have to.”
High home prices and soaring mortgage rates have basically derailed the summer home-buying season.
“Treasury rates were elevated again last week following mixed data on inflation and more indication of resiliency in the economy, which may pose a challenge to the Federal Reserve’s efforts to lower inflation,” said Mortgage Bankers Association deputy chief economist Joel Kan. “The 30-year fixed mortgage rate increased for the third straight week, reaching 7.16% matching October 2022’s rate and the highest rate since 2001. Overall applications decreased because of these higher rates, as both purchase and refinance applications ended the week at their lowest levels since February 2023.”
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Add historically high home prices to the mix and buyers are heading to the sidelines in droves.
“Part of the problem is that there hasn’t really been a break in affordability, and homebuyers really need to catch a break right now,” Kelman said.
Historically, when younger buyers entered the housing market, they steered toward smaller and cheaper homes, but that option is disappearing fast.
“People could go across the country. So if a home was too expensive in Los Angeles, they would be able to buy a $300,000 home in Oklahoma City,” Kelman noted “And now that trend is reversed. Apartments are expensive and houses are expensive. So I think household formation is going to be low.”
“It’s sort of an arrested-development problem,” Kelman added.
The affordability problem is so pervasive it's blanketing the entire country. Median-priced single-family properties are less affordable across the U.S. in the second quarter of 2023 compared to all historical averages, according to ATTOM’s U.S. Home Affordability Report. Even worse, that’s the case for 98% U.S. counties, ATTOM reported.
"The U.S. housing market has done an about-face following a downturn that threatened to usher in an extended period of flat or falling prices. With that has come another blow to how much house the average worker around the country can afford," ATTOM Rob Barber noted. "Whether this is just a temporary blip amid this year's peak buying season or a sign of another extended price surge is anyone's guess. “
“But any predictions of a market demise were certainly premature – and house hunters are feeling the pinch,” he added.
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