High mortgage rates and skyrocketing prices have effectively crushed affordability for buyers. According to Redfin CEO Glenn Kelman, the best thing about the current US housing market is that it likely can’t get much worse. However, he is warning others that the market is frozen and the sales slowdown will probably last for a very “long time.”
Goldman Sachs’ housing affordability gauge finds that affordability has been plunging to an all-time low. These harsh market conditions have been growing for the last year, as has been pointed out by the head of the real estate listing site. This is primarily caused by high mortgage rates that simultaneously hiked borrowing costs for potential buyers while discouraging possible sellers from listing their homes. Even as demand has fallen due to higher rates, home prices have continued to climb, which worsened the supply shortage.
Last month, the median sales price for a single-family home came in at $420,846, creeping back closer to its all-time high. At the same time, mortgage rates have remained stagnant at just 7%. On Tuesday, Kelman spoke in an interview with CNBC, saying, “It’s been a slow-building disaster.” He added, “The housing market is just taking a beating because affordability is at a four-decade low.”
Information from the National Association of Realtors shows that existing home sales substantially dropped from $6.6 million in 2020 to a seasonally adjusted rate of approximately $4 million annually. Furthermore, the small number of homes that have been hitting the market recently is the result of people selling their homes out of necessity following events such as job changes, marriages, and divorces. This differs significantly from other housing slowdowns in the past. Previously, many homeowners were forced to put their properties on the market due to foreclosure risk instead of sudden life changes.
Kelman spoke on the abovementioned difference, saying, “The only people moving are the ones who have to,” he added, “I wouldn’t call that a Goldilocks scenario. I would call that rock bottom. But that’s where we are right now, and the only relief is that it can’t go much lower.” All experts in the field agree that affordability will not improve until mortgage rates dial back down, as Kelman warned the country that the sales slowdown is fated to last a “long time.” Unfortunately, with central bankers keeping a close eye on inflation, mortgage rates will unlikely drop over the next year or more.
To tame high prices, Fed officials elevated interest rates aggressively over the past 18 months. The move ultimately helped push mortgage rates to the two-decade highs where they currently sit. According to the CME FedWatch tool, markets are actively pricing in a 44% chance that interest rates will remain higher than 5% throughout the rest of this year and all of 2024. However, by the end of 2023, Redfin expects the 30-year mortgage rate to relax slightly and scale to around 6%.
