American Housing Market Loses $2.3 Trillion of Value

A 'For Sale' sign hangs in front of a home in Miami Fla., on June 21, 2022. Joe Raedle/Getty Images

The U.S. housing market lost more than $2 trillion in home value during the second half of 2022 as homebuyer demand waned amid elevated mortgage rates, even as home prices fell 11.5 percent from their May peak, according to real estate brokerage Redfin.

At the end of 2022, the total value of U.S. homes was $45.3 trillion, down $2.3 trillion, or 4.9 percent, from the June record high of $47.7 trillion, stated a Redfin press release on Feb. 22. This is the biggest drop in value in percentage terms during the June–December period since 2008. When compared to December 2021, the total value of homes was only up 6.5 percent by December-end 2022, which is the smallest year-over-year monthly increase since August 2020.

Demand from homebuyers slowed down mostly due to high mortgage rates that were pushed up following the Federal Reserve raising its benchmark interest rates. In May 2022, home prices hit a peak of $433,133. By January 2023, home prices had fallen 11.5 percent from May’s peak.

“The housing market has shed some of its value, but most homeowners will still reap big rewards from the pandemic housing boom,” said Redfin economics research lead Chen Zhao. “The total value of U.S. homes remains roughly $13 trillion higher than it was in February 2020, the month before the coronavirus was declared a pandemic.”

“Unfortunately, a lot of people were left behind. Many Americans couldn’t afford to buy homes even when mortgage rates hit rock bottom in 2021, which means they missed out on a significant wealth-building opportunity.”

Mortgage Rates, Expensive Loans

A year ago, the average 30-year fixed-rate mortgage rate was at 3.89 percent for the week ended Feb. 23, 2022, according to data from Freddie Mac. This rose to 7.08 percent for the week ended Oct. 26. The rate had fallen to 6.09 percent by Feb. 1, 2023, but once more rose to hit 6.50 percent for the week ended Feb. 22.

According to Freddie Mac, as the economy is continuing to show strength, mortgage rates are “repricing” to account for stronger-than-expected growth, the potential of “sticky” inflation, and a tight labor market.

“Our research shows that rate dispersion increases as mortgage rates trend up. This means homebuyers can potentially save $600 to $1,200 annually by taking the time to shop among lenders to find a better rate,” Freddie Mac stated in an update on Feb. 23.

In a recent interview with The Epoch Times, Alex Shekhtman, founder and CEO of LBC Mortgage, pointed out that higher interest rates mean more expensive loans, causing buyers to hesitate.

“With prices outpacing wages and higher interest rates adding additional stress onto buyers’ budgets, many prospective buyers are unable to obtain financing to purchase their dream homes or even qualify for certain loan products due to their income level,” he said.

Mortgage Affordability

As interest rates and home prices keep increasing, mortgage affordability has become an issue. The typical monthly mortgage rate nationwide is around $2,486, said a Redfin press release on Feb 23.

While a homebuyer with a monthly budget of $2,500 would be able to buy a house worth $384,000 at present, the same buyer could have bought a $518,000 home in 2021 when mortgage rates were at 3 percent.

Redfin deputy chief economist Taylor Marr expects more people to buy homes once housing costs come down into a range within their budgets. However, “we don’t know when that will happen. Where mortgage rates go from here depends largely on inflation,” he said.

“When inflation does slow down enough to bring rates back down, there’s a pool of sidelined buyers who will be waiting to jump back in. Those buyers will still be limited by a lack of homes for sale, though new listings are down by double digits.”