Property prices continue their relentless climb, frustrating potential homebuyers even as mortgage rates reach a 23-year high. According to the latest Case-Shiller home price index, prices have seen a steady increase for five consecutive months. The National Association of Realtors (NAR) reports that more than half of U.S. metro areas witnessed home price gains in the second quarter of 2023, dispelling hopes of a housing market recession.
“The housing recession is essentially over,” says Lawrence Yun, NAR’s Chief Economist, as median sale prices of existing homes hover near record highs. In July 2023, home prices rose by 1.9 percent year-over-year, reaching an unprecedented median of $406,700, marking the fourth time any monthly median has exceeded the $400,000 threshold since NAR began tracking records.
Despite soaring mortgage rates, which surpassed 7 percent, the housing market’s resilience can be attributed to a severe housing supply shortage, leading to bidding wars and frustratingly low inventories. Skylar Olsen, Chief Economist at Zillow, predicts that home prices will continue to rise into 2024, posing challenges for first-time buyers hoping to enter the market.
Federal Reserve Chairman Jerome Powell expressed concern about the housing market’s sensitivity to interest rates. However, experts anticipate any market correction to be modest and not on the scale of the Great Recession.
Key Housing Market Statistics:
- As of September 6, the average mortgage interest rate for a 30-year loan stood at 7.42 percent, the highest since December 2000.
- Home sales dropped 2.2 percent from June to July 2023, with a year-over-year decline of 16.6 percent.
- In July 2023, the nationwide median sale price reached $407,600, an all-time high for July.
- Housing inventory in July had a 3.3-month supply, slightly up from June but still below the 5 to 6 months considered healthy.
- In July 2023, 31,877 U.S. homes faced foreclosure filings, with Maryland having the highest foreclosure rate.
Despite concerns about price drops, economists are optimistic that any potential decline will not match the severity of the Great Recession. Factors such as stronger homeowner financial positions, cautious building practices, and ongoing inventory shortages contribute to this optimism.
While housing prices have outpaced income growth, the market slowdown differs from traditional real estate downturns. Current homeowners with fixed-rate mortgages and excellent credit contribute to market stability. Additionally, lending standards remain stringent, preventing a repeat of past risky lending practices. Foreclosure activity is also far from the levels seen during the housing crash.
In summary, while the housing market faces affordability challenges, the consensus among experts is that a housing market crash is unlikely in the near future. Low inventory, limited new construction, a growing number of buyers, strict lending standards, and reduced foreclosure activity all contribute to a stable market outlook.
If you’re considering buying a home in 2023, understanding your affordability is crucial. Several factors come into play, including your income, debts, and expenses. Financial advisors often recommend following the 28/36 percent rule of home affordability, which suggests spending no more than 28 percent of your gross monthly income on housing expenses and no more than 36 percent on total debt.
Keep in mind that different types of mortgages require varying minimum credit scores. Typically, a score of at least 620 is needed for a conventional loan. The higher your credit score, the lower your interest rate. As of the second quarter of 2023, successful borrowers have a median credit score of 769.
Assessing your financial situation and credit score will help you determine how much house you can afford in today’s housing market.
