The U.S. real estate market has begun to cool after two years of torrid growth, but soaring mortgage rates, punishing rents, and a shortage of available homes continue to thwart Americans on the hunt for affordable housing.
The latest bad news for would-be homebuyers came on Wednesday (Nov. 2), when the Federal Reserve approved another major hike to its benchmark interest rate in a bid to fight inflation. The average 30-year fixed-rate mortgage hit a two-decade high of 7.08 percent last week, according to mortgage lender Freddie Mac, before easing slightly to 6.95 percent this week.
Lawrence Yun, chief economist for the National Association of Realtors (NAR),
noted in a statement that the mortgage market had already priced in the latest move by the Fed. Mortgage rates could rise to 8 percent or more in late 2022 and early next year if high inflation persists, according to Lisa Sturtevant, chief economist for Bright MLS.
Mortgage rates
averaged just 3.09 percent in the first week of November 2021. This dramatic increase, together with lofty home prices, means that mortgage payments are surging. The typical homebuyer’s monthly mortgage payment jumped more than 50 percent year over year, to a record high of $2,547 in late September 2022, according to
data from real estate brokerage Redfin.
The median sale price (excluding new homes) was $384,800 in September, up 8.4 percent from a year prior, but down from its June peak of $413,800, the
NAR reported. Home sales fell for the eighth straight month in September, to a seasonally adjusted annual rate of 4.71 million, dropping 23.8 percent from the previous year.
Would-be buyers are pulling back from the market as higher mortgage rates bite and homeowners locked into lower rates hesitate to sell. Mortgage applications
fell for the sixth consecutive week, according to data from the Mortgage Bankers Association for the week ended Oct. 28.
“These elevated [loan] rates continue to put pressure on both purchase and refinance activity, and have added to the ongoing affordability challenges impacting the broader housing market, as seen in the deteriorating trends in housing starts and home sales,” said Joel Kan, the association’s vice president and deputy chief economist in a statement.
Another indicator of the challenges facing prospective buyers is that first-time purchasers made up only 26 percent of all home buyers in a
survey just released by the NAR, down from 34 percent last year and the lowest proportion on record. The average first-time buyer was 36 years old, up from 33 a year ago, and the typical repeat buyer’s age rose from 56 to 59.
Due to the lack of housing inventory on the market, more than a quarter of homes are selling above list price, despite the slowing pace of sales. Housing supply is historically tight, marking a sharp contrast with the real estate bubble of the 2000s, when overbuilding led to a surplus of homes.
Rental Woes Persist
The bad news extends to the apartment market, where stratospheric rents have led more Americans to forgo paying for housing entirely. A
September survey by UBS found that 18 percent of U.S. adults had lived rent-free with other people during the previous six months, up from 11 percent during the same time frame in 2021.
The survey revealed that more renters are taking on roommates while others are living with family or friends, in many cases choosing to stay in their parents’ homes or move back in rather than fork out steep rent payments. Apartment demand
slumped in the third quarter as the number of renters moving out of apartments outstripped the number moving in by a surprisingly large margin.
Rents have reached staggering levels this year. The median monthly asking rent in the United States
topped $2,000 for the first time ever in May, Redfin reported. But rents are finally easing due to sluggish demand, with effective asking rents for market-rate apartments falling for a second straight month in October,
according to RealPage.
The real estate software and data firm reported that rents dropped by 0.6 percent, the largest cut for any October in more than 12 years—following an overheated 2021 in which rents rose every single month. Some of the biggest declines were seen in pandemic-era boomtown Boise, Idaho, as well as Honolulu, Hawaii; Johnson City, Tennessee; and Myrtle Beach, South Carolina. The tech hubs of Austin, Texas, and San Jose, California, also saw sizable rent reductions.
“Look for rent cuts to continue through the winter as seasonal slowness returns following two straight years of abnormally strong winter demand,” noted Jay Parsons, head of economics and industry principals for RealPage, in a blog post. The strength of the job market will play a role in whether demand returns next March, the start of the traditional leasing season.
A record number of apartment completions is slated for 2023, which should help absorb pent-up demand throughout the country. More than 917,000 units are currently under construction in the United States, which is poised to increase the nation’s existing apartment stock by 4.9 percent,
according to RealPage data.
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
