The housing market is out of whack.<\/p>\n
The process of buying a home can be painful, and the unpredictable and counterintuitive dynamics of the current real-estate market don\u2019t help.<\/p>\n
Painful, in fact, might be an understatement.<\/p>\n
\u201cIt was a hellish experience,\u201d Odeta Kushi, who bought a home last year in the D.C. metro area with her husband. One of the homes she had bid on ended up receiving 19 other offers. \u201cThat was a house that I really loved,\u201d she said.\u00a0<\/p>\n
When Kushi had begun looking for homes two years ago, she had the exact neighborhood she wanted pinned down. It had a semi-suburban vibe, was in D.C., and had a good school district in case she wanted to expand her family.\u00a0<\/p>\n
Kushi, deputy chief economist at First American, has spent a good portion of her career building a model that can estimate the value of homes, so she knew how much to offer and \u2014 crucially \u2014 when to step out of the bidding process.\u00a0<\/p>\n
At the time, mortgage rates were hovering at around 2.9%, half of what they are in 2023, which made homeownership an even more enticing prospect. And yet Kushi knew it would not be easy.\u00a0<\/p>\n
\u201cI lost bidding war after bidding war,\u201d she told MarketWatch, \u201cbecause I knew exactly what I was going to pay.\u201d<\/p>\n
<\/p>\n
\n \u201c<\/span>The housing market has slowed down in the last two years, but rising interest rates have not put a big dent in prices.\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n In 2021, interest rates were relatively low, and competition among buyers and sales prices were high. In 2023, interest rates are high, and yet so are sales prices \u2014 and there\u2019s still fierce competition to buy homes.\u00a0<\/p>\n Bidding wars are back in earnest. In fact, they\u2019ve never really gone away. The housing market has slowed down in the last two years, but rising interest rates have not put a big dent in prices. So what gives?<\/p>\n Buying a house is an emotional experience, so it can be harrowing to pass up on a house you have set your heart on. \u201cI had a lot of heartbreak in the housing search because you get attached to these homes,\u201d Kushi added.\u00a0<\/p>\n A couple of times, when it looked like it was a done deal, a buyer swept in at the last minute and offered \u201csomething absurd above our asking,\u201d Kushi said. \u201cAll\u2019s fair in love and housing,\u201d she added.<\/p>\n It\u2019s been a year since she\u2019s closed on \u2014 and moved into \u2014 her new home. Since then, the prospects for buyers have only gotten worse: The 30-year mortgage rate has doubled over the last two years, and is now marching towards 8%.\u00a0<\/p>\n Putting aside homeowners, who either purchased a house with an ultra-low mortgage, or refinanced to secure that low rate, most Americans \u2014 from renters to investors to economists \u2014 are in equal parts baffled and frustrated with the trajectory of the U.S. housing market.<\/p>\n Home sales are falling, mortgage rates are at the highest level in 22 years, yet the market is still out of reach for many: Home prices are still high, with the median price of a resale home over $400,000.<\/p>\n The biggest problem for the housing market right now, however, is an imbalance between current homeowners and aspiring homeowners: There\u2019s a severe mismatch of incentives and motivations.\u00a0<\/p>\n Traditionally, the majority of home sales are of homeowners selling their houses to buyers. But homeowners today don\u2019t feel the need to sell, unless they have to for personal reasons, as they probably have low mortgage rates.\u00a0<\/p>\n Affordability has fallen. If they do move, they will find that \u2014 while they may be able to sell their home for a higher price than they bought it \u2014 they may only be able to afford a smaller house or a similar-sized house in a less desirable neighborhood.<\/p>\n Compounding that problem, buyers have fewer home listings to choose from. They turn to builders, who offer new homes and even mortgage-rate buydowns to make owning a home a little less expensive. But builders can\u2019t meet all of the demand. They also don\u2019t want to overbuild, having been bit once during the Great Recession.\u00a0<\/p>\n Some renters have stuck it out, adopting a mentality of \u201cdate the rate, buy the house,\u201d choosing to purchase a home that meets their criteria now and to refinance later on in their life.\u00a0<\/p>\n But the math doesn\u2019t make sense for many other renters. The median rent for a two-bedroom home in the U.S. was nearly $2,000 in July 2023, according to Realtor.com. The same month, the median list price of a home was $440,000 \u2014 or over $2,220 in just principal and interest payments.\u00a0<\/p>\n Even though the real-estate sector has been profoundly impacted \u2014 sales are at \u201crock bottom,\u201d Redfin CEO Glen Kelman told MarketWatch this month \u2014 home prices, to the frustration of many, haven\u2019t budged. <\/p>\n Given that rising home values broadly affect how housing costs are calculated in the government\u2019s inflation measures, some economists fear that the resilience in home prices mean that there\u2019s still a long way to go before the U.S. economy cools off.<\/p>\n \u201cWe\u2019re in uncharted waters,\u201d Andrew Levin, a former Federal Reserve economist, told MarketWatch. \u201cWe\u2019ve never had an increase in mortgage rates that\u2019s been as sharp and sustained as we\u2019ve had in the last year and a half.\u201d<\/p>\n <\/p>\n \n \u201c<\/span>\u2018We\u2019re in uncharted waters.\u2019\u201d<\/span>\n <\/p>\n A stalemate between buyers and sellers<\/strong><\/h2>\n
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