Orphe Divounguy is a Senior Economist at Zillow. The opinions expressed in this commentary are his own.
Rising house prices and mortgage rates have made it difficult for many Americans to afford housing. Loan payments have become almost impossiblehome. And while the market is starting to show signs of cooling, many potential buyers remain on the sidelines for now.
From the 5.81% peak reached earlier this year. Although slightly lower, mortgage rates have nearly doubled since the beginning of the mortgage payments on a typical US home compared to house prices coupled with rising Amounts are up about 60% from a year ago, drivinghome affordability down to 15-year lows in June.
This means more and more people are being cut off the market, especially in the most expensive areas of the country. A 14.2% year-on-year decline, Zillow data shows that it has been declining on an annual basis every past 12 months, indicating that both demand and supply are declining.
For now, there are enough people who can afford homes whose prices continue to rise, but there are clear signs that the market is beginning to rebalance.For example, home prices. elongation ofis slowing down. Zillow data also shows that recently-contracted homes are closing very quickly by historical standards, but the time a typical home spends on the market is at a record low. is starting to rise. More and more sellers are lowering their prices.
Many potential buyers who have been stuck on the sidelines may welcome this slowdown, hoping that prices will drop enough to re-enter.
While mortgages and rising interest rates cool demand, they also cool supply. Home construction ,which tends to be highly responsive to changes in interest rates, has retreated in recent months, limiting supply and pushing up home prices. Housing starts fell 6.3% year-on-year in June, and the total number of housing permits increased slightly from last year's level, although permits related to single-family home construction declined in June. An 11.4% decrease from last year's level.
A decline in new construction has long been a leading indicator of economic weakness. And while we can't fully see the future, one thing remains clear. That said, persistent housing shortages don't bode well for housing affordability in the United States. The main reason home prices are so high in the first place is that the country's 3.8 million homes do not meet housing demand
are slowing due to rising mortgage rates is not limited to new construction. Potential sellers are holding back on listings — data from Zillow shows he had new items on the market in June compared to the same month in 2021, and he had 8% less It is If potential sellers expect their homes to stay on the market longer as housing demand slows, they're less likely to be listed in the first place. Nearly one-fifth of respondents cited financial uncertainty as the reason for not having a sale plan. Also, 71% of sellers bought at the same time, and are likely facing much higher mortgage rates than current mortgage rates, making trade-ups and downsizing more likely.
For those looking to climb the housing ladder, all this means that buying a home won't be significantly cheaper in the near future. Instead, this shift in the market only suggests that those who can still afford to buy a home are taking a little breather. To mitigate, we need to build more housing in all price ranges, especially entry-level housing.
According to Zillow research, duplexes, triplexes and attached units are widely favored throughout neighborhoods and among homeowners. Adding units generally keeps the price down. These types of homes tend to be more affordable than single family homes in particular.
Moreover, relaxing single-family zoning regulations that impede housing construction could add millions of new homesat the federal level. Expanding and passing new tax incentives for affordable housing — such as the Low Income Housing Tax Credit and the Neighborhood Housing Investment Act also help.
Struggling Americans don't have to be rooting for a crash that will never come close to finally owning a home. It's a great opportunity to help.
