Demand Still Key Amid Shifting Housing Market Dynamics

This rise has occurred despite some mixed affordability signals for those looking to buy a home.

• The “bad”: Mortgage rates are rising and as of late September were near 7.2%.
• The “good”: The US New Home Median Sales Price has fallen. The Median Sales Price declined from a high of $479.5 thousand in 4Q22 to $416.1 thousand as of 2Q23.

As a result of the mortgage rate and Median Sales Price trends, the US Average Mortgage Payment on a median-priced new home with a 30-year mortgage was at an estimated $2,285 in June. This is down from the October 2022 all-time high of $2,684. The decline is going to be part of the means by which the housing market forces will need to change to get Housing Starts back into a sustained rising trend. While the 14.9% decline in the Average Monthly Payment is important, it is worthwhile to note that the current Average Mortgage Payment is 82.6% above where it was when COVID struck.

Mortgage rates and sales price are two of the variables that factor into home affordability. Income is another, and the trend there is positive.

US Median Annual Earnings were at a record-high $57,357 as of 2Q23, the latest data.

• All of the above factors in synthesis mean that the average monthly mortgage payment on a newly constructed median-priced home accounts for about 47.7% of median monthly earnings.

That is not exactly “affordable” by recent standards – when business cycle decline commenced for Single-Unit Housing Starts off the April 2022 high, the figure was at 33.3% – but it is a notable improvement from the late-2022 high of 56.9%.

Outside of the very moderate affordability improvements, demand is helping spur renewed rise in residential construction.

• The US Homeowner Vacancy Rate, a measure of the proportion of housing stock that is vacant and for sale, is at 0.7%, a record low for the dataset, which dates back to 1956.

Furthermore, ITR Economics is forecasting generally intense inflation and rising interest rates following pullback in 2024. This will create a sense of urgency for prospective homebuyers.

Is Now a Good Time To Buy a House?

“I encourage millennials…sometime in the next 18 months, preferably in 2024 as interest rates are relaxing a little and maybe housing prices are relaxing a little … Get the house,” ITR Economics President Alan Beaulieu said in July at the “2030s Great Depression Update” webinar, presented by him and ITR Economics CEO and Chief Economist Brian Beaulieu.

He added that affordability issues such as high mortgage rates will not spell “the end of the housing market” this decade.

“People will buy homes on the fear that housing prices keep going up and that mortgage rates keep going up,” Alan Beaulieu said, describing a mentality that may be familiar to some: “We’d better jump in now before it gets even worse.”

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