The housing affordability crisis is the worst in generations. Tens of millions have been priced out in the past year due to skyrocketing lending costs and a lack of housing stock that has driven prices to unimaginable levels.
We have documented the rapid collapse of the "American Dream" in
The housing crisis worsens as affordability reaches record low
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"Housing affordability worsens as home ownership out of reach for anyone making under $100k".
The National Association of Realtors and Realtor.com released a report in June that stated over 75% of homes on the market were too expensive for middle-class families. The rapid rise of the 30-year fixed rate mortgage from 3% to more than 7%, and the 40% increase in home prices in the pandemic years are to thank for this.
Zillow, and other realtor sites are attracting millions of consumers who are searching for the ideal starter home. High borrowing costs in two years of real wage declines are what has prevented many consumers from purchasing a home. Many people are asking: When will mortgage rates drop? This is the question that we may have answered.
Morningstar published a housing report which forecasts that the average 30-year mortgage rate will peak at around 7%, then trend downward in the second half of the calendar year. The average rate for this year is expected to be around 6.25%. Morningstar's model predicts 5% in 2024, and even 4% in 2025.
The Fed increased interest rates dramatically to combat inflation. The Fed is expected to reduce the federal funds rate aggressively over the next few years. We anticipate that the rate will drop from the current 5% to less than 2% in 2025.
They said that once the Fed won the war against inflation, it would then focus on re-launching the economy, which, according to them, will require lower interest rates.
Morningstar added, "Regardless what happens over the next few decades, we expect rates to settle down back at the low levels which prevailed prior to the pandemic." Once the dust settles after the economic turmoil caused by the pandemic, the low-interest rate regime will return.
They also noted that "our long-term interest rate projections are driven primarily by secular trends." Ageing demographics, slower productivity growth and rising inequality are all factors that have been pushing down real interest rates over the past few decades.
Morningstar predicts that rising incomes, combined with falling home prices, will increase housing affordability.
Case-Shiller National Home Price Index is a good indicator of home prices.
First time since April 2012 that a job application was turned down.
Morningstar stated that "our revised home price projection now projects new and existing home prices to decrease 6% and 4.4% respectively over 2022-2024." The analysts called the decline in home prices a "mild adjustment" and noted that a price drop would not be possible due to a shortage of inventory nationwide.
Mortgage rates indicate that prices still have a way to go down.
The Fed's insistence on tightening the financial conditions to curb inflation has increased the likelihood of a hard landing. The Fed is more likely to continue to wreck the economy as it did in regional banks this year. This would cause them to pivot. The best thing for a potential homebuyer is to hope for a recession, which would lower borrowing costs because the Fed would switch from QT measures to stimulative ones.