The American Dream of owning a home is slipping away as the cost of buying a new house hits an all-time high, according to a new report from Fox Business.
Even though mortgage rates recently dropped to a three-month low of 6.99%, the median U.S. home sale price jumped to $394,000 in the four weeks ending June 9, a 4.4% increase from last year, according to Redfin.
Chen Zhao, an economist at Redfin, said that while the latest inflation report might give homebuyers a break by pushing mortgage rates down, the Federal Reserve’s upcoming meeting could put a damper on any big drops. “If lower mortgage rates bring back more demand than supply, that could erase the possibility that home-price growth softens, and push prices up even further,” Zhao warned.
Several factors are fueling the current affordability crisis in the housing market.
For years, we haven’t built enough homes, leading to a serious shortage across the country.
Foreclosures on the rise again nationwide — A look at the hardest hit states #Foreclosure #Mortgage #Housingmarket #Housing #Realestatehttps://t.co/nGkp5w0mQd
— Donna Barford (@DonnaBarford) June 17, 2024
On top of that, mortgage rates have shot up, and construction materials are expensive.
Another problem is the “golden handcuff” effect.
Many homeowners who locked in super-low mortgage rates of 3% or less during the pandemic are now hesitant to sell, which limits the supply even more and leaves few options for eager buyers.
Economists think mortgage rates will stay high for most of 2024 and will only start to drop once the Federal Reserve starts cutting rates.
But even then, rates likely won’t return to the record lows we saw during the pandemic. Investors predict just one or two rate cuts this year.
This is the most unaffordable US housing market
Home prices, adjusted for inflation, are much higher than even the peak of the pre-Financial Crisis period
To put this into perspective:
Median home prices had reached $350,000 in 2006
Today, it is just shy of $400,000 pic.twitter.com/9EqDrYGSmF
— Game of Trades (@GameofTrades_) June 17, 2024
The shortage of available homes is startling.
According to Realtor.com, the current supply is a whopping 34.3% lower than the typical amount before the COVID-19 pandemic hit in early 2020.
A Zillow survey shows that homeowners are almost twice as likely to sell if their mortgage rate is 5% or higher.
But right now, about 80% of mortgage holders have a rate below that, which makes the supply shortage even worse.
To tackle this issue, policymakers, especially in blue states, need to make it easier for builders to construct new homes by cutting red tape and loosening strict regulations.
By encouraging more homebuilding and increasing the overall housing supply, the market can start to ease the pressure on prices and make homeownership more affordable for aspiring buyers.
As the nation wrestles with this housing affordability crisis, it’s important to remember that the American Dream of homeownership is on the line.
By taking bold steps to support builders and boost the supply of available homes, we can help keep this dream within reach for future generations.
