Housing prices are getting higher and higher.by National Association of Realtors, Mortgage rates have increased by more than 1 percentage point on average over the past 12 months. The average price of housing is also gradually increasing. The association’s statisticians say that, overall, relative to household income, the affordability of homeownership for the average American has plummeted by nearly 10% over the past year and is now at its lowest level since 2011. It is estimated that there is. Loosen. Still, home sales continue to increase.of census bureau It reported that private home sales fell slightly in October, the most recent period for which data is available, but were still about 18% above the previous year’s level. Americans are still very concerned about inflation, which is why sales are maintained, contrary to standard price theory.
In fact, housing market trends indicate that more than any other economic indicator, Americans acknowledge that inflation has eased recently but are concerned that the economy is not fixing problems on this issue. It shows that you are doing it. They fear rising costs of living and demonstrate that fear by flocking to homeownership, the best inflation hedge available, securing it even if it means stretching their household finances to the limit. Few homeowners can quote numbers, but the history of the last great inflation guides their decisions. From the mid-1970s to the mid-1980s, the country tracked an overwhelming burden of inflation of 6.2% per year. Bureau of Labor Statistics That still outpaced the 8.7% increase in residential real estate prices recorded by the Census Bureau. The 2.5 percentage point difference more than offset the burden of mortgage interest payments, which at the time had risen to double digits.
For some, the logic of ownership is compelling in other ways, even if it means paying higher mortgage rates and thereby straining household finances. Once housing is secure, families will be able to lock in the price of their home, a major household budget item, whether financed with a cash purchase or a high- or fixed-rate mortgage. Become. This is a great comfort at a time when people are afraid that everything else’s prices will rise. Unexpectedly. For those who remain wary of inflation, and that’s most people outside the White House, the peace of mind this provides is well worth the budgetary expense. Although affordability may prevent expected large purchases or purchases in desirable locations, these benefits justify lowering the price distribution. And these types of purchases maintain demand even as costs rise.
Had supply not also declined, pricing could have collapsed despite this demand support. Existing owners, especially those who bought at the very low mortgage rates that prevailed until last year, appear unwilling to escape such benefits. If for some reason they need to change residence, they will cling to the original mortgage and the home it comes with, further encouraged by the 11% rise in national rents recorded in 2021-2022, to reduce their real estate costs. I will have to rent it. Store it in the new location until the terms of your new purchase become more favorable. Then they sell the old house and buy a new one. At the same time, home builders are building fewer single-family homes by about 4.4% compared to last year, according to a report from the Census Bureau, and some have turned to rental properties in anticipation of an early rise in rents. . This shift by builders, combined with a relative slowdown in the supply of owner-occupied homes for sale, is driving up prices in this area of the market, while the strong rent growth trend has come to an abrupt halt this year.
As is often the case, the issue is more complex than simple supply and demand price considerations, especially for products like homes that last much longer than a haircut. If inflation fears subside and the Fed starts lowering interest rates, things will look just as complicated, as this confluence of incentives works in reverse.
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