US Home Prices Hit Another Record High as Affordability Crisis Worsens

The housing market in the United States is experiencing record-high prices for new homes, with the median home sale price reaching $394,000, representing a 4.4% increase from the previous year. Despite the increase in prices, mortgage rates have decreased to the lowest level in three months. Currently, the average monthly mortgage payment for a home at that price is $2,829 based on a median interest rate of 6.99% for a 30-year mortgage. The recent drop in mortgage rates was influenced by a report showing a cooling in inflation in May. However, there is a possibility that prices may continue to rise if demand outpaces supply due to lower mortgage rates.

Chen Zhao, the economic research lead at Redfin, acknowledges that the recent inflation report has helped lower mortgage rates, but predicts that the Federal Reserve meeting may impact the rate of decline in mortgage rates. He emphasizes that if lower rates lead to increased demand without a corresponding increase in supply, it could lead to further price increases in the housing market. The underbuilding of homes in recent years, combined with rising mortgage rates and expensive construction materials, has contributed to the affordability crisis in the housing market.

Another factor contributing to the affordability crisis is the reluctance of homeowners who locked in low mortgage rates during the pandemic to sell their homes. This has limited the supply of available homes for sale, leaving potential buyers with fewer options. Economists project that mortgage rates are likely to remain elevated for the majority of 2024 and may only start to decrease once the Federal Reserve begins to cut rates. However, even with anticipated rate reductions, rates are not expected to return to the record lows seen during the pandemic.

Freddie Mac reported that the average rate on a 30-year loan this week slightly decreased to 6.95%, down from a peak of 7.79% in the fall but still significantly higher than pre-pandemic lows of 3%. The supply of available homes is currently 34.3% lower than it was before the COVID-19 pandemic, according to Realtor.com. A survey conducted by Zillow found that the majority of homeowners are more willing to sell their homes if their mortgage rates are at 5% or higher. Currently, about 80% of mortgage holders have rates below 5%, potentially limiting the number of homes available for sale in the market.

In conclusion, the housing market in the United States is facing an affordability crisis due to record-high prices for new homes, combined with elevated mortgage rates and limited housing supply. The recent decrease in mortgage rates following a cooling in inflation may offer some relief to potential homebuyers, but the overall outlook for prices remains uncertain. Homeowners who locked in low mortgage rates during the pandemic may continue to hold off on selling their homes, further exacerbating supply shortages. Economists predict that mortgage rates are likely to remain high in the near future, with only a limited number of rate reductions expected. Overall, the housing market is facing challenges that may impact both buyers and sellers in the coming months.