According to Redfin CEO Glenn Kelman, things can’t be much worse for the US housing market than they are right now. The market has frozen and sales have slowed down for an extended period of time as a result of high mortgage rates and skyrocketing prices that have severely damaged potential purchasers’ finances.
High mortgage rates, which have raised borrowing costs for purchasers and deterred prospective sellers from selling their houses, are credited by Kelman with the current state of the market. In spite of a decline in demand brought on by higher rates, this has made the dearth of supply even more severe and increased property prices. August saw a single-family home’s median sales price of $420,846 as mortgage rates stayed above 7%.
The National Association of Realtors reports that existing home sales have decreased from over 6.6 million a year in late 2020 to a seasonally adjusted rate of about 4 million a year. The few houses that do come up for sale are usually being sold by homeowners who are selling them out of necessity, like moving or getting married, rather than because they are at risk of going into default, as was the case during prior housing downturns.
According to Kelman, the slowdown in sales will likely last for a while because affordability isn’t expected to improve until mortgage rates drop. It is anticipated that this will not occur in the upcoming year, though, since central bankers continue to take a cautious approach to inflation. The present two-decade high mortgage rates are a result of the Fed’s aggressive rate hikes throughout the last 18 months in an effort to counteract high prices. Redfin predicts that the 30-year mortgage rate will fall to about 6% by the end of 2023, while the markets are pricing in a 44% possibility that interest rates will remain higher than 5% by the end of 2024.