By Chief Investment Officer Tom Kelly, CFA.
The housing market is often viewed as a cornerstone of financial stability. The home signifies a sanctuary, a place where one can relax, enjoy, live, and grow. In the 2008 housing crisis, we experienced how fragile the economy can be when the cornerstone is shaken. While global stock markets have broadly recovered since high inflation and fed rate hikes caused a recessionary scare last year, the housing market has continued to face seismic shifts that may put the chances of a so called “soft landing” on shaky grounds.[1]
In 2023, mortgage rates reached heights not seen in two decades, with the 30-year fixed rate mortgage average hitting a recent high of 7.31% in September.[2] At the same time, potential homebuyers found themselves in a daunting landscape with the number of homes for sale dwindling to 1.1 million as of August, with inventory over the last couple years reaching the lowest levels since 1982.[3] In stark contrast to the pre-pandemic era, there are now only around two-thirds as many homes available on the market.[3] With mortgage demand hitting a 26-year low in September, largely due to the scarcity of available housing inventory and little incentive to refinance, there doesn't appear to be much opportunity for those looking to make a move.[4]
Source: “30-Year Fixed Rate Mortgage Average in the United States”. Federal Reserve Bank of St. Louis, 1971-2023, fred.stlouisfed.org. See Important Disclosure Information.
But the challenges don't stop there. Rental prices have also seen a steady rise. The average rent for primary residences in U.S. cities remains 7.8% higher than a year ago as of August.[5] These elevated rental levels represent the most significant increases we've witnessed since the early 1980s.[5] Additionally, the Federal Reserve Bank of Atlanta estimates that the amount of income the median household needs to spend yearly in order to own a median priced home in the U.S. is 43.8% as of July, significantly higher than the 28.5% amount in December 2019.[6] While many homeowners are locked in to 3-4% mortgages, the next generation of buyers and families may be renting for a little while longer.
The various factors contributing to these unsettling trends in the housing and rental markets are multifaceted and complex. Markets tend not to like extremes, and the quest for stability and security in housing has become more elusive. The future of the housing market is uncertain, and its resilience will be a crucial factor in the broader economic landscape.
Important Disclosure Information & Sources:
[1] “SJS Weekly Market Update”. SJS Investment Services, sjsinvest.com.
[2] “30-Year Fixed Rate Mortgage Average in the United States”. Federal Reserve Bank of St. Louis, 1971-2023, fred.stlouisfed.org.
[3] “United States Total Housing Inventory”. Trading Economics, 1982-2023, tradingeconomics.com.
[4] “Mortgage Applications”. Mortgage News Daily, 1991-2023, mortgagenewsdaily.com.
[5] “Consumer Price Index for All Urban Consumers: Rent of Primary Residence in U.S. City Average”. Federal Reserve Bank of St. Louis, 1915-2023, fred.stlouisfed.org.
[6] “Home Ownership Affordability Monitor (HOAM)”. Federal Reserve Bank of Atlanta, 2023, atlantafed.org.
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Statements contained in this article that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
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