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(This article originally appeared in NextMove, a weekly newsletter on the housing market. Sign up using the box below.)
in your inbox every ThursdayThe housing market is stuck. And only one is likely to solve it.
This is Jon Reed from NextAdvisor. Mortgage rates, like fashion trends, are repeating what they were 20 years ago. That means interest rates are in the 7% range, double what he was at this time last year. Experts say interest rates are unlikely to go down any time soon. In fact, it could be even higher by the end of 2022.
Let’s talk about the other half of the home affordability equation: price. Nationally, they hit record highs this summer, but have started to drop a bit in recent months. I’m here.
Soaring mortgage rates have prompted homebuyers, especially first-time buyers, who are usually short on cash and heavily dependent on borrowing, to stop looking for homes. It has slowed from a blistering pace, implying a slight increase in the inventory of homes on the market.
However, these homes are still too expensive for many buyers to buy at current prices. So what has to happen next?
Again, prices must come down.
As a short-term solution, sellers should continue to lower home prices in order to find buyers. Discounts are already becoming commonplace.
In the long run, the way homes are built in this country must change. Years of low interest rates have pushed people to buy bigger and more expensive homes. The market has responded by prioritizing them over smaller and more affordable ones.The average new home size is 2,300 square feet, according to U.S. Census data. By the 1970s, it was nearly 1,600 square feet.
If mortgage rates remain high, homebuyers will need affordable options, including smaller single-family homes and more townhomes and condos.
The housing market has changed dramatically in a short period of time, with house prices and mortgage rates rising much faster than normal. If you’re trying to balance it out, some adjustments are needed.
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