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During the pandemic, the U.S. housing market was red hot. Homebound people looked for new places to live, millennials were looking for their first homes, and low-interest record rates enticed buyers. When the slowdown came, it came quickly—spurred by inflation and the Federal Reserve’s hike of interest rates.

Bidding wars and lines to see open houses have subsided, as have sellers’ expectations of exorbitant sales prices.

So, where do home sellers and buyers stand right now?

Here are the significant factors behind the topsy-turvy housing market.

 

Mortgage rates

T90% of all mortgages are for a 30-year fixed mortgage. The rate for that type of mortgage has just about doubled in the past year.

For home buyers, buying a $400,000 home costs $700 more per month now than it did in January 2022.

 

High prices, low supply

Prices on homes went up during the pandemic and have not come down. Those prices are 43% higher now than at the pandemic’s start.

Although 27% more homes are on the market than a year ago, it is not enough to meet demand. There has been a shortage of homes, compared to willing and able buyers, for years. When looking back to 2019, the active inventory is 43% lower than it was then.

Housing starts are also down. According to the U. S. Census, single-family housing starts dropped 18.5% in July 2022 compared to the previous year. Fewer buyers touring model homes has meant that home builders are cutting production.

 

Buyers are still out there.

According to Black Knight, a mortgage technology and data provider, home prices dropped nationally by 0.77% from June to July 2022.  While that figure is a small price drop, it is the largest single-month decline since January 2011.  Buyers who are being creative, such as by looking at smaller markets, are able to find some creative way to purchase in this market,

 

Affordability troubles

However, the price drop has done little to mend the affordability crisis triggered by the rise in interest rates.  The week of September 9th stands as the least affordable week in the past 25 years to buy a home.

Using the monthly median income as a guide, it now takes 35.51% to meet the monthly principal and interest payments. In the previous five years, that figure was about 20%.

This affordability crisis may be the largest factor if housing prices are to decline. You have to price things, including homes, to sell.  If the price of a home is beyond the reach of a buyer, they cannot buy.

 

Short Term Predictions

Housing experts seem to agree that home sales through the fall and winter will be slow.  The high cost of building materials and the lack of buyers mean fewer new homes will be constructed.  Coupled with high-interest rates and a lack of older homes for sale, buyers will most likely be sitting on the sidelines regarding new purchases.