Buying a home can be an ordeal, and the housing market is especially rough right now. Just what factors are causing the biggest headaches? Here are five reasons 2023 has been the worst year for housing in decades in this week’s Five For Friday.
#5: Rent
If you have to put off buying your dream home, renting these days isn’t much better. Being rent-burdened is the new normal, according to Moody’s Analytics. That’s when someone spends at least 30% of their household income on rent. National median rent has jumped more than $400 per month since January 2020. And the more money you spend on rent, the less you have to save up for a house.
#4: Affordability
Home affordability is at its lowest point since 1985, according to the National Association of Realtors. The metric weighs whether a typical family earns enough to qualify for a mortgage for an average-priced home.
Median home prices are up 29% over the last three years, at $416,000 the second quarter of this year. Nearly 1 in 10 homes is now worth one million dollars or more, according to Redfin. Meanwhile, median household income has declined since 2019 when adjusted for inflation.
#3: High interest rates
If affordability hasn’t pushed you out of the market quite yet, here come oppressive interest rates.
The average 30-year mortgage rate has spiked from 3% at the end of 2021 to more than 7.5% in October 2023. Mortgage rates are up a full percentage point this year alone. For context, for every point mortgage rates go up, purchasing power goes down by roughly 10%.
#2: Inventory
Let’s assume you can afford an overpriced home and that massive mortgage payment. It’s still going to be tough to find the right home on the market.
During the COVID-19 pandemic housing boom, buyers bought up inventory at breakneck speeds. Now that rates are higher, homeowners are holding onto those properties and their favorable mortgage rates. Inventory is moving slightly upward this year, but is still below where it was the same time last year.
Looking for new construction? Homebuilders are already at max capacity, and having trouble keeping up with demand.
#1: Bad year for sales
This year is shaping up to be the worst for home sales since the 2008 housing bust, when the market collapsed and the nation fell into recession. Redfin projects 4.1 million homes will be sold in 2023. If that number falls below 4 million, it would be the worst performance for the housing market since 1995.
