Looking for a home in the current market? It may not be easy. Mortgage rates are at their highest in over two decades, barring many potential buyers from entering the market and dissuading homeowners with low rates from listing their homes for sale.
Despite a 21% decline in sales of previously occupied U.S. homes in the first eight months of the year, the limited number of available properties is driving up prices.
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With high rates and a shortage of homes, the affordability crisis has worsened. So where does this leave homebuyers? According to some economists, the average rate on a 30-year mortgage is unlikely to drop below 7% before next year.
The CEO of Century 21, Mike Miedler, recently discussed the challenges faced by homebuyers in an interview with The Associated Press. In his view, the impact of high rates on affordability and home inventory highlights the need for more construction of affordable homes. The interview has been condensed for clarity:
Q: Are the current mortgage rates above 7% the new normal, or should buyers wait for rates to ease?
A: Mortgage rates have risen at an unprecedented pace. However, it’s important to recognize that they are still in line with the average mortgage rate over the past 50 years in this country. We shouldn’t expect a return to 2% or 3% mortgage rates anytime soon. The range of 5% to 7% is likely to persist in the foreseeable future.
Q: Although the national home sales inventory has increased slightly, it remains limited at around 1.1 million homes. What is the solution?
A: Looking back at the Great Recession from a real estate perspective, we see that we have a shortage of anywhere between 3.5 million to 5-plus million homes due to foreclosures and overbuilding during that time. This shortage is now creating a macro supply and demand issue. The largest generations in U.S. history, millennials and Gen-Z, are entering their prime homebuying years, but there simply aren’t enough properties available for them to buy and move into. Homebuilders are focusing on high-end properties, while neglecting the need for more creative options for first-time homebuyers. That should be the solution to these challenges.
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Q: Will the low level of homes on the market continue to limit the housing market in the foreseeable future, given that new home construction hasn’t caught up?
A: If interest rates remain stable and move-up buyers don’t see an opportunity to acquire bigger and more desirable homes at a good value, the inventory issue will likely persist. We may continue to see around 4 million existing homes sold each year, instead of the normal 5 to 5.5 million that we’ve seen in the past decade.
Q: Home prices have skyrocketed during the pandemic and haven’t seen significant easing despite the housing downturn. Do you think more first-time buyers will be able to afford homes in the next few years?
A: Affordability is a key factor to consider. It currently takes about nine years for the current generation to save for a 10% down payment—significantly longer than the five years it took previous generations. This is why we’re seeing more people relying on financial support from their parents. Additionally, many are moving to more affordable markets where there are job opportunities and properties within their budget.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]
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