Today, we're delving into the housing market and exploring the possibility of a crash in 2023. I've received a lot of queries about this topic, and I want to address the concerns on everyone's mind.
The housing market has hit an all-time high in November after 10 months of rising prices. Americans are making record down payments as they rush back into the housing market. A recent Twitter poll showed nearly half of respondents were likely to buy a house in the next two years.
The real estate market historically experiences boom and bust cycles. Realtor.com's year-end review described the housing market as "frozen" in 2023. Existing home sales are on track to be the fewest since 1995, and pending home sales are at their lowest level since 2001.
The U.S. population has increased by 18% during this period. The median home price rose 2.1% year-on-year to $428,000, setting a new record. There is a shortage of 3.2 million housing units across the United States.
Nationwide affordability is at its worst since 1984, with 38.6% of median household income required for monthly payments. 99% of the U.S. is unaffordable for the average American making $71,000 a year.
An income of nearly $110,000 is needed to qualify for the average home at today's prices with a 20% down payment. On the West Coast, an income of $161,000 is needed to buy an average home.
Unemployment is at its historic low of 3.7%. Historically, unemployment rates have risen due to economic factors like inflation and interest rate hikes.
Inflation slowing down typically leads to increased unemployment rates. The average worker experiences a 6-7% income loss for each 1% point increase in the unemployment rate.
A recession in 2024 could weaken housing demand and stress existing homeowner finances, potentially prompting sales and reversing supply-demand balance.
Fannie Mae warns that personal consumption relative to incomes is at an unsustainable level and monetary policy effects are still working through the economy.
A survey shows only 16% of people believe it's a good time to buy a house, an all-time low. High mortgage rates are cited as the top reason for this sentiment, leading to low consumer confidence.
Jerome Powell suggests three rate cuts throughout 2023, potentially leading to federal funds rate of 4.5% and mortgage rates between 5.5% to 6.5%.
Wells Fargo predicts home prices will appreciate by 2.5% in 2024 and by 4.4% in 2025. Zillow forecasts a 6.5% increase in home prices by July of 2024, with Goldman Sachs agreeing that prices won't decline from current levels.
Sixty percent of homeowners have mortgages locked in below 4%, which may deter them from selling unless interest rates decrease significantly.
A drop in mortgage rates to around 5.5% could encourage more buyers and sellers to enter the market. Lower rates increase affordability and reduce the disparity between current and potential mortgage payments, making it a more appealing prospect for those considering a move.
Jerome Powell anticipates a soft landing for the economy in 2024 due to controlled inflation, strong GDP, robust consumer spending, and $6 trillion cash reserves ready for investment if needed.
Seasonal price swings can lead to lower housing prices during certain times of the year, with some regions experiencing up to a 22% difference between summer and winter prices.
Housing values have generally increased over time when adjusted for inflation, with only one decline in the last fifty years (in 2010).
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