Nile Lundgren, Associate Broker at Serhant, comments on the middle class being deprived of the price of exiting home ownership.
US home prices rose to their highest on record in May, suggesting a mounting inventory shortage has been putting pressure on would-be homebuyers.
Average home prices rose 0.7% in May from the previous month, mortgage research firm Black Knight said in a recent report. House prices are now 0.1% higher than a year ago.
“There is no doubt that the real estate market has regained momentum from a house price standpoint,” said Andy Walden, vice president of corporate research at Black Knight. “Rising prices have now completely reversed the decline we saw in the last half of 2022.”
The Federal Reserve’s aggressive rate hike campaign pushed mortgage rates above 7% for the first time in almost two decades and cooled the sizzling real estate market. But even if interest rates are slow to fall, home prices are rising again as buyers adjust to the new interest rates.
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Houses in Rocklin, California, United States, on Tuesday, December 6, 2022. (David Paul Morris/Bloomberg via Getty Images / Getty Images)
According to Freddie Mac, rates on the popular 30-year fixed-rate mortgage are currently around 6.81%, well above the 5.3% rate recorded a year ago and the pre-pandemic average of 3.9%.
Although interest rates are almost double what they were three years ago, house prices have hardly changed.
This is mainly due to the lack of homes for sale.
Sellers who secured a low mortgage rate before the pandemic began were reluctant to sell, leaving few options for eager potential buyers.
A recent Realtor.com report showed that the number of available homes on the market in June was more than 47% below the typical level before the start of the COVID-19 pandemic in early 2020.
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A view of homes in a neighborhood in Los Angeles, California on July 5, 2022. (FREDERIC J. BROWN/AFP via Getty Images / Getty Images)
“Mortgage rates are 6 [percent] “Price has ranged as much as 7 percent for more than six months, and despite affordability headwinds, homebuyers have adjusted, driving new home sales to the highest level in more than a year,” Sam Khater said , Freddie Mac’s chief economist, recently.
Across the country, housing stocks have fallen in 95% of major markets. The largest fluctuations took place in western states, including Phoenix, Arizona; Boise, Idaho; Ogden, UT; Colorado Springs and San Francisco.
More than half of the nation’s 50 largest housing markets, which are primarily concentrated in the Midwest and Northeast, regained their previous highs in house prices in May — or hit new highs, according to the Black Knight.
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“The same leverage used to reduce demand – that is, raising interest rates – has not only made housing unaffordable almost everywhere in the major markets, but has also created significant supply constraints by driving potential sellers who unwilling to bid in such an environment is a deterrent, further driving prices higher,” Walden said.
He added, “Even if interest rates fall now, but not enough to lure potential sellers off their mortgages below 3.5%, there could be a widespread surge in home prices across the US.”