If you don't already own a home, you're going to be screwed for years to come
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Attempting to time the housing market is a foolish pursuit. Sure, there are heaps of data, forecasts, and market experts who can offer theories on where home prices or borrowing rates are headed. But no amount of tea-leaf reading can spare you from this harsh reality: Homebuying is ultimately a coin toss. If you're very lucky, you buy a home right before prices boom. If you're not so fortunate, you pony up the cash just in time for the bubble to burst.
While these breaking points are nearly impossible to see in advance, they're often glaring in hindsight. Perhaps the most shocking "before and after" for the housing market in recent memory — the moment when the fortunes of homebuyers diverged, creating what one expert called a "housing economy of 'haves' and 'have-nots'" — came in July 2020. That's when it became clear that a wave of house-hungry millennials and space-starved remote workers were turning the housing market's initial pandemic slump into a full-blown frenzy.
The differences between those who bought homes before and after that turning point are staggering. People who got in before things went haywire were able to dodge skyrocketing home prices, lock in record-low mortgage rates, and stack hundreds of thousands of dollars in home equity over the past few years. Meanwhile, people left on the sidelines have watched their rent costs eat into their down-payment nest eggs, median home prices soar by 30%, mortgage rates shoot back up, and the pool of available homes shrink to the lowest levels in recent history.
The result is a housing market that's fundamentally out of whack. With each passing month, more millennials, and now Gen Zers, reach the points in their lives where they feel the urge to settle down and buy a home. Yet the number of available homes remains shockingly low, especially during what would normally be a busy spring selling season. On the horizon, there's no flood of new homes that could significantly ease the housing crunch. And homeowners have little incentive to move, since doing so would mean giving up the comfortably low mortgage rates that guarantee them manageable home payments for decades to come.
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The housing market has changed for good — and with the benefit of time-earned wisdom, we can pinpoint the moment it entered a new era. If July 2020 was the make-or-break moment for the market, we may now be seeing the crystallized "new normal": a fraught landscape defined by a scarcity of available homes, borrowing rates that have sharply rebounded from their historic lows, and homeowners who feel locked in by the deals they scored earlier in the pandemic. Call it the Housing Ice Age.
An upside-down housing market
While the transformation may have been triggered by a once-in-a-generation public-health emergency, Mike Simonsen, the president of the housing-data firm Altos Research, told me, the seeds of our upside-down housing market were planted over a decade ago. Since the housing crash of 2008, builders' reluctance to add to the supply of homes, combined with a gradually cresting wave of millennial first-time buyers, created a combustible scenario.
"We were already at record-low inventory when we started the pandemic, then the pandemic just accelerated all of these things," Simonsen said.
Two big things happened during the initial response to the pandemic that launched the housing market past the point of no return. First, borrowing rates hit historic lows as the Federal Reserve attempted to stimulate the economy. This shift allowed more people to get access to mortgages and dramatically reset buyers' expectations in ways that will reverberate for years. Second, demand for homes surged because of the widespread adoption of remote work and the sudden urge people felt for more space. The chaos pulled forward years of homebuying activity, creating a rush for homes that seriously warped the market. Both factors have propelled competition in the housing market to new heights and made it challenging for would-be buyers to find their footing.
When that fateful July arrived in the pandemic's first year, homes were selling quicker than they had in any month since the National Association of Realtors began collecting data in 2011, prompting the organization to proclaim a "V-shaped housing-market recovery." First-time homebuyers were jumping into the market with gusto, accounting for 34% of home purchases. The median home price in the third quarter of that year jumped to $337,500, up 5% from the previous quarter, kicking off a two-year streak of massive price increases. Fueling this sudden shift was collapsing mortgage rates, which, for the typical 30-year loan, fell below 3% for the first time ever that month.
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"I might say July is the turning point, where you actually saw that sharp increase in demand driven by the low-interest-rate environment and the remote-work phenomenon," Cristian deRitis, the deputy chief economist at Moody's Analytics, told me.
As the dust settles after a hectic few years, it's becoming clear which of the pandemic distortions are going to stick around as long-term trends. Homebuyers and real-estate agents who grew accustomed to the market running red hot during the first couple of years of the pandemic are confronting the challenges that come with a much-chillier environment — higher borrowing rates, fewer transactions, and a dearth of homes that ensures competition for listings remains fierce.
The most striking feature of this new housing market is the historic lack of homes available for sale. Part of this is due to pre-COVID-19 decisions: The hype around income-earning investment homes has over the past decade led to roughly 8 million homes being taken out of the resale market and turned into investment properties, Altos Research estimates. Even still, the severity of the inventory crunch proves something else has shifted.
A busy spring selling season, when inventory typically spikes as people gear up to move in the summer, hasn't materialized this year. Typically, you'd expect to see about 1 million single-family homes on the market around this time of year, Simonsen told me — today there are just over 400,000. In March, roughly 30% fewer properties hit the market compared with pre-pandemic norms, Black Knight, a mortgage-software and -data provider, reported. And in April, existing home sales were down a whopping 23% from last year, Realtor.com found. The number of new listings that hit the market in March and April was essentially on par with the low levels in 2020, when the country was in the throes of the first pandemic restrictions, Danielle Hale, the chief economist at Realtor.com, told me.
"If you had told us in 2019 or 2018 that we were only going to have a little over half a million homes on the market in April, no one would have believed you," Hale said. "It's so vastly different that it's probably hard for most people to comprehend."
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Many would-be sellers are content to stay put because they've locked in mortgage rates well below what they could get if they got a new loan today. After rates bottomed in late 2021, the Federal Reserve's interest-rate hikes — designed to fight inflation that was caused in part by the housing-market surge — have sent borrowing costs soaring. The typical rate for a 30-year mortgage now stands at around 6.4%, according to Freddie Mac, about the highest levels since the Great Recession. This has kept people from putting their houses on the market and suppressed overall inventory levels. Roughly 86% of US homeowners with mortgages have an interest rate of 5% or lower, while half of all mortgages have an interest rate of 3.5% or lower, well below today's level, according to Black Knight. And roughly three in five homeowners have moved just within the past four years, meaning that even if rates do come down, many mortgage holders will be in no hurry to move, according to data from Redfin.
"The high-interest-rate environment is locking out a lot of would-be first-time homebuyers. It's just not affordable at these levels for them, given their incomes," deRitis told me. "But even more frustrating, perhaps, is for buyers who are qualified, who even have the cash available — there's just very limited existing home inventory. Even if they want to buy, they just can't."
The lucky and unlucky
This new Ice Age will have profound effects that are likely to linger for decades. Those who bought homes before the market's turning point have watched their wealth skyrocket over the past several years. As of March, the typical homeowner with a mortgage had about $185,102 in tappable equity — the amount they can borrow against while keeping a 20% stake in their home — according to Black Knight. That's a 54% increase from the same point in 2020. In the two years ending in October, US homeowners gained a whopping $9 trillion in home equity, according to the Federal Reserve.
Renters have seen none of those wealth gains. In fact, they're more burdened by rent than ever before. Last year, the typical American household needed to fork over more than 30% of its income to rent an average-priced apartment, according to Moody's, the first time since the firm began tracking the data 25 years ago that the rent-to-income ratio crossed that threshold.
For the people who can wade into the market today, there's ample evidence that they're getting short-changed. In March 2020, $300,000 could have gotten you a roughly 2,000-square-foot home, according to data on average prices per square foot from Realtor.com. Today, that same dollar amount would get you a 1,400-square-foot property. So in just three years, the same amount of money gets a buyer 30% less house. The NAR's housing-affordability index has plummeted since the start of the pandemic, falling from about 180 to just 98 as of March.
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Some aspects of the pandemic-era housing market that once seemed "odd" are increasingly becoming new norms. Buyers are still bidding quickly on the homes they want — more than 20% of homes are going under contract almost immediately, Altos Research found. In 2022, all-cash purchases accounted for more than one-third of all single-family-home and condo sales, a nine-year high, according to Attom Data Solutions, a real-estate-data firm.
For those who missed out on the past several years of wealth building, the long-term effects could be devastating. We already know that millennials are living with their parents later, delaying typical life milestones such as getting married or having children, and having to wait longer to purchase homes. As a result, they have less wealth than their predecessors did, even though their earnings have caught up to those of previous generations. The steep rise in mortgage rates last year ensured that there would be a decadeslong gap between those who secured cheap rates earlier in the pandemic and those who will be forced to contend with all kinds of rising housing costs in the coming years.
"The thing that I think is maybe not changing is the fact that we have people who are in homes now who are locked in for 30 years," Simonsen told me. "If I've got a 30-year mortgage, I don't ever have to sell that house. Those are generational changes."
James Rodriguez is a senior reporter for Insider.
FAQs
Do you think the housing market will crash again? ›
Most experts do not expect a housing market crash in 2023 since many homeowners have built up significant equity in their homes. The issue is primarily an affordability crisis. High interest rates and inflated home values have made purchasing a home challenging for first-time homebuyers.
What was the worst housing market in US history? ›On December 30, 2008, the Case–Shiller home price index reported its largest price drop in its history. The credit crisis resulting from the bursting of the housing bubble is an important cause of the Great Recession in the United States.
When was the crash of the housing market? ›The housing market bubble burst in 2008 when subprime mortgages, a massive consumer debt load and crashing home values converged, as recorded in Investopedia.
What is the housing market forecast for 2023 in San Diego? ›Based on the available data, there is a positive market forecast for the San Diego housing market. The forecast suggests a projected increase of 3.6% in home values over the next year, starting from April 30, 2023.
Will 2023 be a good time to buy a house? ›Homebuyer.com data analysis indicates that, for first-time home buyers, June 2023 is a good time to buy a house relative to later in the year. This article provides an unbiased look at current mortgage rates, housing market conditions, and market sentiment.
Will house prices go down in 2023 usa? ›Although home prices are expected to improve in the second half of the year, the California median home price is projected to decrease by 5.6 percent to $776,600 in 2023, down from the median price of $822,300 recorded in 2022.
Is the US housing market in trouble? ›US Housing Market in Trouble: Moody's Predicts Home Prices Will Fall in 2023 and 2024. Existing home prices fell 12% to $363,000 in February from $413,800 last June.
What happens if the US housing market crashes? ›As prices become unsustainable and interest rates rise, purchasers withdraw. Borrowers are discouraged from taking out loans when interest rates rise. On the other side, house construction will be affected as well; costs will rise, and the market supply of housing will shrink as a result.
Why the US housing market won't crash? ›When will the housing market crash? Actually, economists do not think it will. Housing economists point to five main reasons that the market will not crash anytime soon: low inventory, lack of new-construction housing, large amounts of new buyers, strict lending standards and a drop in foreclosures.
Will the housing bubble burst in 2023? ›Frequently Asked Questions About Housing Bubbles
Demand for homes remains high, and there are fewer home sellers than there were in 2022. And while the market is cooling, experts don't expect an actual housing crash or a housing bubble burst in 2023.
Will housing prices go down in a recession? ›
Will house prices go down in a recession? While the cost of financing a home typically increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.
How long did it take for house prices to recover after 2008? ›Delving Into 2008's Recession
Home prices fully recovered by late 2012. If someone bought a house at the very peak of the recession in 2007 and held the property for 5 years, they made money in appreciation after 2012. It took 3.5 years for the recovery to begin after the recession began.
They see existing single-family home sales to fall 18.2% to 279,900 units this year vas 342,000 homes sold in 2022. They expect home prices to improve in Q3 & Q4 this year, over in 2023 they expect the medium home will delince 5.6% compared to 2022, to $776,600 in 2023 ($822,300 in 2022).
Is real estate in San Diego expensive? ›San Diego is an expensive city due to its wealthy population who can afford to pay high prices for housing. These affluent individuals often hold lucrative jobs that require them to live in upscale neighborhoods, leading to a demand for high-end housing options.
What should you not do when staging a house? ›- Too Much Furniture.
- Furniture That Doesn't Fit the Room.
- Household Smells.
- Keeping Knick Knacks on Display.
- Excessive Dark Paint.
- Drastically Different Paint Colors Throughout the Home.
- Pushing All Furniture Against the Walls.
- A Lack of Light.
This delay in itself will not cost you extra money, but if the 3-day delay pushes the repayment of the old loan too close to the weekend, you could end up with a longer overlap in interest payments. You will ideally want to sign your documents on a Tuesday or Wednesday to avoid this issue.
Will interest rates go down in 2024? ›These organizations predict that mortgage rates will decline through the first quarter of 2024. Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point.
What is the average US home price in 2023? ›Average home price in the United States: $436,800
The median home sales price is $436,800 as of the first quarter of 2023. That's a 32% increase from 2020, when the median was $329,000.
In my opinion, real estate is one intelligent option to consider in 2023, as it often has excellent returns, tax advantages and provides diversification even in the face of a challenging economic climate. Real estate also has the potential to compound your investment.
What will mortgage rates be in 2024? ›30-Year Mortgage Rate forecast for April 2024. Maximum interest rate 5.97%, minimum 5.49%. The average for the month 5.77%. The 30-Year Mortgage Rate forecast at the end of the month 5.66%.
Will the US housing market crash in 2024? ›
Despite the fact that there are some troubling trends in the housing market, we're likely not going to see a crash in 2023 or 2024. While house prices are likely to drop, demand for housing caused by America's ongoing housing shortage is likely to keep prices relatively stable.
How much did house prices drop in the recession 2008? ›The median price for a U.S. home sold during the fourth quarter of 2008 fell to $180,100, down from $205,700 during the last quarter of 2007. Prices fell by a record 9.5% in 2008, to $197,100, compared to $217,900 in 2007. In comparison, median home prices dipped a mere 1.6% between 2006 and 2007.
Does the housing market crash too if the stock market crashes? ›There's no official correlation between stock market performance and housing prices. However, overall economic indicators that result from a stock market crash can often reverberate to the property market once stocks dip below 20%.
Should I sell my house before the market crashes? ›Before a recession hits, home prices are typically at an all-time high. This means that selling your home before a recession will result in a higher profit between the purchase price of the real estate and the sale price, which can increase your capital gains taxes.
What happened to housing in 2008? ›The housing market crash of 2008 remains one of the most significant events in the history of the United States housing market. It was caused by a combination of factors, including the subprime mortgage crisis, high levels of debt, and a lack of regulation in the financial sector.
Is it better to have cash or property in a recession? ›In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term.
What happens to my mortgage if the economy collapses? ›Recessions and housing market crashes may cause your house's value to decrease. However, your set mortgage rates won't lower, meaning your monthly payments will be higher than your home's worth. While many may dip into their savings to help pay the steep bills, others may need outside assistance.
How long does a housing recession last? ›How long do housing market downturns last and how do they end? According to data from the National Bureau of Economic Research (NBER) going back to 1854, an average recession lasts about 17 months.
What was the worst housing crash in history? ›It happened in the early 1980s, then again in the early 1990s, and most notably in the years following the 2008 housing crash. That said, sharp home price declines are incredibly rare: Only the Great Depression and the Great Recession saw nationwide home prices fall in the double-digits range.
Who was president when the housing market crashed? ›In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods.
Who lost money in 2008 crash? ›
Steven Spielberg and Jeffrey Katzenberg both are reported to have lost from the funds. So did banks HSBC and Royal Bank of Scotland. Tufts University has written off a $20 million investment with Madoff, and Yeshiva University is another reported victim.
Why buying real estate in 2023 could be a good idea? ›2023 is a balanced year for housing supply and demand. This is ideal for retail purchasers and rental property investors. No longer a “seller's” market. Rising interest rates raise the monthly mortgage payment, which reduces homebuyers and lowers property values.
Should I buy a new car now or wait until 2023? ›Americans planning to shop for a new car in 2023 might find slightly better prices than during the past two years, though auto industry analysts say it is likely better to wait until the fall. Since mid-2021, car buyers have been frustrated by rising prices, skimpy selection and long waits for deliveries.
What is the most unaffordable city in California? ›Union City, California
The tradeoff is that it has the lowest rent out of all 10 cities. With a $122,054.66 annual cost of living, you'll need $10,171.22 per month to make a life there.
Coronado, an enchanting island city nestled across the bay from downtown San Diego, California, is a coveted enclave for those seeking a life of wealth and luxury. Known for its pristine beaches, historic charm, and exclusive amenities, Coronado epitomizes affluent living in the San Diego region.
What is San Diego most expensive city to live in? ›San Diego Ranks Among Most Expensive American Cities to Live Comfortably. A new SmartAsset study ranks San Diego second highest, just under San Francisco, NBC 7's Kelvin Henry reports.
Will home prices drop in 2023 Florida? ›Overall, the Florida housing market is likely to remain strong in 2023, with continued demand for homes and steady price growth. However, the market may begin to stabilize as the growth rate slows down, which may lead to more balanced conditions between buyers and sellers.
Will home prices drop in Texas in 2023? ›While some areas may experience an increase in housing prices, others may experience a decline. In Dallas, TX, housing prices are expected to decrease by 0.1% as of April 2023, followed by a further decline of 0.3% in June 2023, but are projected to increase by 0.7% by March 2024.
Is it better to buy a house now or when the market crashes? ›Buying a property during a recession has advantages
Auctions may yield a reasonably priced house. To boost the economy, the Fed reduces interest rates during recessions. Banks decrease rates, including mortgage rates. Cheaper mortgage rates mean lower house costs over time.
During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.
Do house prices go down when the economy crashes? ›
What Happens to Home Prices in a Recession? Home prices generally fall during recessions, with home values slipping in four out of the five major recessions between 1980 and 2008.
Will home prices drop in 2024 Florida? ›With mortgage rates declining faster than expected, home prices are likely to remain mostly flat throughout 2024.
Will mortgage rates go down in 2024? ›Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point. Figures are the predicted quarterly average rates for the 30-year fixed-rate mortgage.
How much does a house appreciate in 10 years? ›Average Home Value Increase Per Year
National appreciation values average around 3.5 to 3.8 percent per year. Ownerly explains that the average home appreciation per year is based on local housing market trends as well as the economy, and this makes for a great deal of fluctuation.
The Federal Reserve Bank of Dallas reports that Texas' residential construction job count fell more than total employment during the recession, and took more time to rebound. The shortage of carpenters, masons and other skilled workers led to higher wages, which increase the bottom-line price of homes.