USA: The housing market right now is crazy! 😩

Home prices, already high, soared during the pandemic, rising more than 40 per cent nationally from the end of 2019 to mid-2021, according to the S&P CoreLogic Case-Shiller price index. They’ve risen more slowly since then, but they haven’t fallen as many economists expected when the Fed started raising interest rates.

Rising interest rates have put those prices even further out of reach for many buyers. Someone buying a US$300,000 house with a 10 per cent downpayment could expect to pay about US$1,100 a month on a mortgage in late 2021, when interest rates on a 30-year, fixed-rate loan were about 3 per cent. Today, with rates at about 7 per cent, that same house would cost about US$1,800 a month, nearly a 60 per cent increase in monthly costs. (That doesn’t even take into account the rising cost of insurance or other expenses.)

• Historical context: Briefly touch on the housing bubble and crash of 2008 to provide a frame of reference.
• Current market conditions:
  • Soaring prices: Delve into the reasons behind the unprecedented increase in home prices, such as low inventory, high demand, and rising construction costs.
  • Limited inventory: Discuss the shortage of available homes for sale and its impact on buyers and renters.
  • Affordability crisis: Highlight the growing gap between rising home prices and stagnant wages, making homeownership increasingly out of reach for many.
• Contributing factors:
  • Low-interest rates: Explain how the Federal Reserve's policies have influenced the housing market.
  • Supply chain disruptions: Discuss the impact of global supply chain issues on construction and home prices.
  • Remote work: Explore how the shift to remote work has changed housing preferences and driven up demand in certain areas.
• Impact on various stakeholders:
  • Buyers: Discuss the challenges faced by first-time homebuyers and the competitive nature of the market.
  • Renters: Highlight the rising rental costs and the difficulty of saving for a down payment.
  • Builders: Explore the challenges faced by builders, such as labor shortages and increased material costs.

A shift may be underway

For much of the past two years, the housing market – especially for existing homes – has been stuck. Buyers can’t afford homes unless either prices or interest rates fall. Owners feel little pressure to sell, and aren’t eager to become buyers.

What could break the logjam? One possibility is lower interest rates, which could bring a flood of both buyers and sellers back to the market. But with inflation proving stubborn, rate cuts don’t appear imminent.

Another possibility is a more gradual return to normal, as owners decide they can no longer put off long-delayed moves and become more willing to cut a deal, and as buyers resign themselves to higher rates.

Hardly anyone expects prices to collapse. The millennial generation is in the heart of the home-buying years, meaning demand for homes should be strong, and years of under-building mean the country still has too few homes by most measures. And because most homeowners have plenty of equity, and lending standards have been tight, there isn’t likely to be a wave of forced sales as there was when the housing bubble burst nearly two decades ago.

But that also means that the affordability crisis isn’t likely to resolve itself soon. Lower rates would help, but it will take more than that for homeownership to feel achievable to many younger Americans. NYTIMES

The US housing market is currently in a state of unprecedented turmoil. Soaring home prices, coupled with a severe shortage of available homes, have created an affordability crisis that is putting the dream of homeownership out of reach for many Americans. A confluence of factors, including historically low-interest rates, supply chain disruptions, and a surge in demand fueled by remote work, has pushed the market to its limits. As a result, buyers are facing fierce competition, bidding wars, and the need to waive contingencies to secure a home. The situation has been particularly challenging for first-time homebuyers, who are often outbid by investors and buyers with larger down payments.

Additional Considerations:

• Regional variations: While the overall trend is a nationwide shortage, there are significant regional differences in the severity of the crisis. Consider highlighting specific cities or states with particularly acute problems.
• Potential solutions: Briefly touch on potential solutions, such as increasing housing supply, reforming zoning laws, and providing more affordable housing options.
• Expert opinions: Quote real estate experts, economists, and policymakers to provide a range of perspectives.

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