Brokerage expert notes the market has a "macro supply and demand" issue
Mortgage rates are at a 20-year high, leaving more prospective homebuyers reluctant to make moves and discouraging homeowners from putting their homes up for sale.
Fueling the declining housing affordability is low home inventory. Recent data on existing home sales revealed a slump of 21% through the first eight months of 2023. The purchases for new single-family homes fell by 8.7% in August.
Some economists are anticipating the average rate on a 30-year mortgage will remain high, at least around 7%, until 2024.
Mike Miedler, CEO of real estate brokerage franchisor Century 21, described the hikes as the “fastest” the housing market has ever seen in history. He noted though that the rates were still on par with what is “probably the 50-year average for a mortgage rate in this country.”
“I don’t see anytime soon we’re going to be going back to 2% or 3% mortgage rates. I think we’re probably somewhere in this 5% to 7% range for the foreseeable future,” said Meidler.
Real estate pressures
In speaking with Miedler, The Associated Press was able to gather some insights on the pressures on the real estate market. On national home sales inventory increasing but remaining limited at around 1.1 million homes, Meidler said the current market is “kind of” going into a macro supply and demand issue. He noted there were not enough creative first-time homebuyer situation properties being developed, which could solve the issue.
“If you look over the Great Recession from a real estate perspective here in 2008-2012, when so many people lost their homes to foreclosure and you overbuilt, what’s happened this last decade is we’re anywhere from 3.5 million to 5-plus million homes short,” said Meidler. “We’re kind of going into a macro supply and demand issue, which is you’ve got the largest generations in US history—millennials and Gen-Z—entering their main homebuying years, and we just don’t have enough property to sell and for people to move into. [Homebuilders] are developing more of what I would call high-end properties, but not enough creative first-time homebuyer situation properties. And I think that’s really the solve to all of this.”
Meidler said the current shortage in supply would likely persist if there’s not a lot of movement in rates. The number of existing homes sold would likely remain around four million units as compared to at least five million units sold as has been the case over the last decade.
First-time homebuyers of the current generation may take nine years to save a 10% downpayment for their first home, it was suggested.
“When boomers were doing it in the 80s and 90s, it only took you about five years. And so I think that’s why you’re seeing more and more people having to go to the ‘bank of mom and dad’ to borrow,” said Meidler. “But that’s also why you’re seeing a lot of drive into more affordable markets. People are moving to places where obviously there are jobs, but [also] inventory that they can afford.”
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