It is very difficult to purchase a house in 2023. Alongside prices constantly rising, mortgage rates have been the highest we have seen in the past 23 years. Prices continued their increasing trend in the month of July, promoting the latest release from the S&P CoreLogic Case-Shiller home price index to conclude that 19 out of the 20 markets measured month over month gains. The National Association of Realtors (NAR) also reported that the median home price as of September, 2023 had increased by 3% over the past year, making it the third month in a row to display year over year jumps.
NAR data shows the median sales prices of existing homes are on the verge of record highs. September 2023 saw the median rise to $394,300 which is only $19,500 off of an all time high of $413,800. It is important to note that multiple seasonal fluctuations in home prices set June to be the highest priced month of most years in the market.
Home values have been complacent even with the soaring mortgage rates, which have climbed up to 8%. The main problem for the housing market is the lack of housing supply compared to the demand from buyers as, "You’re not going to see house prices decline,” says Rick Arvielo, head of mortgage firm New American Funding. “There’s just not enough inventory” (Skylar Olsen chief economist at Zillow). Olsen agrees with the current supply and demand imbalance and forecasts that home prices will continue to rise into 2024, which will benefit sellers and will hurt first time homebuyers.
So is the housing market going to crash... the answer to that is no. The limited supply and increased demand is blocking a price decline as, " There are more people than housing inventory. It’s Econ 101" (Mark Fleming chief economist at title insurer First American Financial Corporation)
Source: https://www.bankrate.com/real-estate/is-the-housing-market-about-to-crash/
The housing market issue seems to be an ongoing pain then. With prices not forecasted to go down any time in the near future, what can be done? With your example of the the supply not matching the demand perhaps increased investment by producers in the housing market could help the limited supply. However, interest rates deter this level of investment. The high mortgage rates also deter consumer borrowing to even be able to afford the limited supply available currently. These steep prices are a tricky issue.
ReplyDeleteGraham are you implying that we build more houses creating more inventory when you say that we could perhaps increase investment by producers? I think this could help the problem potentially but I think it also could hurt cities and cause growth to quickly for the other infrastructures within the city itself that make it sluggish. But you said it the steep prices in the housing market are causing tricky issues for individuals wanting to purchase a home.
DeleteWe see that the housing market is facing challenges with rising prices and with high mortgage rates. The data you've presented, along with Skylar Olsen and Mark Fleming opinions, emphasize the imbalance between housing supply and demand. Since there isn't enough inventory to drive prices down, it's unlikely for housing market to crash, even though first-time buyers face tough situations. As Mark Fleming said, it's a classic case of supply and demand economics.
ReplyDeleteThe market for housing has always been an issue. I've heard people saying for a while that the one thing that will never have a lower price (except from during a recession) would be the housing market. Prices are almost guaranteed to keep rising as the supply & demand goes further and further out of balance.
ReplyDeleteI have been working on the housing market for our newsletter in this class and agree with everything you said. Yes prices are soaring and supply is low, but it does not present the same signs of a crash like in 2008. The inventory issue is a driving problem in the current status of the housing market. While it is easier said than done, an increase in housing inventory surely would relieve most of the pressing problems like high prices.
ReplyDeleteI also have been analyzing the housing sector in the newsletter assignments and I agree with your synthesis. The housing market will always be an imperfect thing; however, the only thing that can truly be fixed right now is the lack of inventory on the market. I understand most people do not want to buy a house these days as rates are over 7-8%, but who knows maybe the rates will never go down to what they used to be a few years ago.
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