Stop me if you've heard this before: there is no housing shortage. But there is an affordability shortage. Home prices remain historically high while mortgage rates are still hovering in the 6.5% range. Put those two together and the monthly cost of owning a home has simply become too much for a large portion of the market. The median sale price has reached a record $434,000.
But there鈥檚 an interesting split developing beneath the headline numbers: Luxury is hot. $1 million+ home sales are up 14% year-over-year.
But move down the price ladder, particularly in parts of the South and West, and you鈥檙e beginning to see something very different: prices are correcting. The housing market isn't one market.
Stop me if you've heard this before: there is no housing shortage. But there is an affordability shortage. Home prices remain historically high while mortgage rates are still hovering in the 6.5% range. Put those two together and the monthly cost of owning a home has simply become too much for a large portion of the market. The median sale price has reached a record $434,000.
But there鈥檚 an interesting split developing beneath the headline numbers: Luxury is hot. $1 million+ home sales are up 14% year-over-year.
But move down the price ladder, particularly in parts of the South and West, and you鈥檙e beginning to see something very different: prices are correcting. The housing market isn't one market.
At the risk of sounding like I actually know what I'm talking about :-) I've said for a long time "it isn't interest rates". Required underwriting for banks to be able to sell their loans to investors is that the mortgage payment can't be greater than a particular ratio of the monthly income.
Yes, interest rates play a role, but my first house was $79,000 @ 8% which made for a mortgage payment of $579.67 and now the house is listed for $1,300,000 and interest rates are approximately 6.75% for a monthly payment of $8,431.78 which is $8,372,11 more.
Same House $79,000 @ 8.00% = $579.57 $1,300,000 @ 6.75% = $8,431.78 Difference = $8,372.11 More
Of course property taxes and insurance go up with the price as well
You need about $25,379 a month to qualify. On an inflation adjusted basis, the house would list for $250,000 not $1,300,000 and $250,000 @ 6.75% = $1,621.50 a month - much more manageable for family
Even if rates dropped to 2.5% which I guarantee they won't and the payment would be $5,136.57 it's still a stretch for anyone not making $15,000 or more a month.
So, what made housing costs skyrocket? Part of the equation is the "I want it now" approach to life. Some is the huge accumulating national debt, some is regulation and taxes and some is just people who want "more" than what their parents started out with, a three bedroom one bath simple house.
I deal with people who want to get out from under that debt, huge maintenance load in a large house, all the time. They've drained their resources and now want out. It makes for a wonderful market for me to take over their problem, but it isn't solving their initial wrong thinking.
Buy what you can afford, not what you want for your "forever home" until you can afford it and eventually the market will listen and prices will come back down.
Investor 路 Fort Lauderdale, FL 路 Member since 2013 路 917 posts 路 607 votes
1mo
Housing prices have reached levels of insanity. I don't see how it gets any better. Those who are clamoring for 3% rates are overlooking the price explosion that will follow. The Fed screwed up with artificially low rates, causing the mess we have today. In their back pocket they figured they had the cure: higher rates. They went from 3% to 7.5%, oh my. But the housing market had other plans in mind and prices continued higher. What's left for the Fed to do next? I'm thinking guns, gold, and better call Saul.
Housing prices have reached levels of insanity. I don't see how it gets any better. Those who are clamoring for 3% rates are overlooking the price explosion that will follow. The Fed screwed up with artificially low rates, causing the mess we have today. In their back pocket they figured they had the cure: higher rates. They went from 3% to 7.5%, oh my. But the housing market had other plans in mind and prices continued higher. What's left for the Fed to do next? I'm thinking guns, gold, and better call Saul.
I just looked at the diamond supply and did you know that diamonds have tanked, pearls have tanked (both have artificial manufacturing now) when that finally happens to gold all bets are off :-)
