"I don't think we'll see any kind of improvement on the gap between homeowners and renters"
The housing market saw a divide in 2023 as home prices and mortgage rates soared and housing affordability deteriorated which may carry on to 2024, as reported in an article by Fortune.
Odeta Kushi (pictured), deputy chief economist at First American, said that as the housing market has both winner and losers, one’s place depends on where they are in the housing ecosystem.
Kushi explained that first-time homebuyers have had a difficult time with the market as they dealt with a nearly impossible affordability environment, while homeowners were focused on building equity and were either locked in on low mortgage rates or did not have mortgages at all.
Median home prices rose by 7% from the previous year while principal and interest payments for the existing median-priced home rose by almost 80% in the past few years. Kushi said that this has caused a lock-in effect that has constrained supply and worsened affordability.
“Even if you could afford to buy, you can’t buy what’s not for sale, and there’s just not that many homes for sale in today’s market,” said Kushi.
“We went into 2023 with the expectation that the housing market was going to crumble, and I would say on the existing-home side, it largely did,” said Ali Wolf, Zonda’s chief economist, adding that housing did avoid the 20% or 30% decrease in home prices that many expected.
Devyn Bachman, John Burns Research and Consulting’s senior vice president of research, said that new-home sales accounted for almost 14% of all home sales nationwide which outperformed most expectations. However, the existing-home market is still frozen.
Wolf said that it was possible that the gap between the new-home and existing-home market may carry on in 2024 and she expected the new-home market to continue surpassing the latter even if it may not be considered a blockbuster year.
However, Bachman said that the prediction was dependent on what happens with the interest rate environment - if there were lower interest rates, new homes may not be as important in the housing market.
Meanwhile, the mortgage market overall saw longtime homeowners coming out on top according to Bachman, with 98% of outstanding borrowers locked in a below-market mortgage rate. Meanwhile, first-time homebuyers and renters were at a disadvantage, even as the rental market softened.
“Converting from renting to owning feels nearly impossible. Not only because supply is tight, but also because affordability is so bad right now,” said Wolf.
“I don’t think we’ll see any kind of improvement on the gap between homeowners and renters for this year,” she added.
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