During the pandemic-related real estate boom, property prices and rents skyrocketed. Mortgage interest rates Mortgage rates then shot up. Because mortgage rates shot up so suddenly from historic lows, people stopped selling their homes, and because the country is underdeveloped by Millions of householdsthe sales freeze did not help. The real estate market has cooled since then: real estate prices do not increase exponentiallyMortgage rates are lower than the highest in over two decades reached last year, rents are generally stagnant, and inventory has increased. Yet everything feels very different than it did before the pandemic.
“We are experiencing the worst housing affordability crisis we have ever seen in this country,” said Shaun Donovan, former U.S. Secretary of Housing and Urban Development in the Obama era and executive director of Enterprise Community Partners (a nonprofit housing organization) in an interview on CNBC on Tuesday. “We had an 18% increase in rents compared to last year, housing prices rose to levels we’ve never seen before. So we’re seeing some stabilization, but at levels that are way above what people can afford.”
He continued, “This is not going to change on its own. We have too little housing in this country and we need to build more.” Donovan later estimated the housing shortage at five to seven million homes, but estimates vary.
The biggest inflation driver
Urban economists, housing policy analysts, real estate managers and others have said it time and again: more housing needs to be built. But of course that’s easier said than done. Local governments and neighborhoods have a lot of power when it comes to development. Still, Donovan said the latest bout of unaffordability is leading to discussions among mayors, governors and legislators.
Not to mention, he said, “that housing prices are the main driver of inflation today. So we need to do more in housing to bring inflation down.” And while the housing market situation has calmed down somewhat, “we should recognize that in terms of the affordability crisis, we have reached a level that we have never seen before.”
Donovan referred to a recently published report from Harvard University’s Joint Center for Housing Studies, which found that nearly one in four homeowners were “worryingly overextended” and half of all renter households were considered cost-burdened, spending more than 30% of their income on housing in 2022.
For comparison, the median rent for all bedrooms and all property types is $2,150. accordingly ZillowIn May, the median sales price for existing homes was $419,300, the highest price ever recorded. accordingly the National Association of Realtors. And right now, the average 30-year fixed-rate mortgage is daily mortgage interest is 7.08% (the weekly one is 6.95%). Regardless, Zillows monthly housing report for May found that home values are 45% higher than pre-pandemic levels, and the typical mortgage payment has more than doubled since pre-pandemic times, increasing 115%.
Andy Walden, vice president of corporate research strategy at ICE Mortgage Technology, who also participated in the CNBC interview, said most baseline housing market forecasts do not predict a decline in national home prices. “It’s more likely that the housing market will remain neutral for a couple of years to support this kind of rebalancing,” he said. But that doesn’t take into account Pandemic boomtownslike Austin, which his Home prices fall significantly from their peak. “Some markets will fall, but nationally we’re more likely to see sideways movement than downward,” Walden said.
Zillow for example expected home prices fall by 1.2% between May this year and next year, while Moody’s expects an increase of 0.4%. And Fannie Mae sees real estate prices By the end of next year, with a plus of 1.5%. We’ll see who’s closest.