It’s no secret that today’s housing market is unsustainable. With home values staying stagnant, predictions of interest rate drops next year offer little hope of relief. In this highly competitive market, any potential decrease in rates would only result in further escalating prices. This means that home ownership is becoming increasingly unaffordable for the average American.
When interest rates were previously over 5.5%, people were already saying that homeownership could become out of reach for many. However, it seems that the situation has recently become even more serious, with some people predicting that rates could become as high as 9%. Although there may be more building in some areas, such as the Charlotte, NC suburb, the new homes are selling quickly due to builder financing incentives, leaving little hope for those hoping to purchase a home soon.
With the current situation, it appears that the only way to make home ownership more accessible is for home prices to come back to reality. However, this could have a huge effect on the economy as a whole. If people’s incomes are going towards housing, other parts of the economy may suffer a seismic shift.
The current housing market is also creating an interesting math problem. In high cost of living (HCOL) areas, a house may rent for approximately $4,500 a month, yet a mortgage, with 20% down, could cost the buyer up to $8,000 a month. Even for all cash buyers, there is only a 5% yield, which is still risky. This market dynamic is making it increasingly difficult for first-time homebuyers to own a home. Those already in a home, however, are more likely to have an interest rate in the 3’s.
It’s clear that the housing market is in a state of crisis, and it is difficult to predict when it will reach a more sustainable state. Homeowners already in the market may be able to benefit from any potential interest rate drops in the near future. However, this will do little to help those looking to purchase a home in the current market. It appears that the only way to make home ownership more accessible would be for home prices to come back to reality, which could have an enormous effect on the economy.