High mortgage rates and high home prices have dragged down sales activity in the U.S. housing market to a pace not seen since the years after the 2008 recession and housing bust.
Recent data from real estate brokerage Redfin estimates that sales of existing homes in the U.S. could top out around 4.1 million in 2023. That would be the lowest number of sales since around 2008, the Wall Street Journal reported.
Redfin economist Chen Zhao said the housing market is likely in for a “fairly prolonged freeze” in the absence of larger economic shifts. The persistence of the Federal Reserve’s high interest rate policies and the limited inventory of existing homes are on track to keep demand in check, even though many buyers would otherwise be willing to make purchases if affordability and supply were more favorable.
The comparison to the period after 2008 is indirect. At that time, predatory lending practices and wider economic vulnerabilities led to a deep recession that pushed millions of people out of work and cost many their homes.
This time around, the Fed’s efforts to contain inflation have hamstrung a housing market that was on fire during the pandemic. Rising interest rates have not only made mortgages less affordable, but also dissuaded potential sellers from listing their homes because they don’t want to buy properties in such an unfavorable market for buyers. Even many sellers have had to lower their list prices several times to find willing buyers in the current market, with the exception of well-maintained properties in areas that remain in high demand.
In early October, the 30-year fixed-rated mortgage climbed to an average of 7.57%. Combined with low home inventory keeping home prices high, many buyers simply don’t have the financial flexibility to invest in purchasing homes.
In late September, purchase mortgages reportedly dropped to their lowest levels since 1995.
Buyer sentiment appears to be shifting toward priorities that can potentially make home ownership more affordable, according to survey data from Realtor.com.
An increasing number of people seeking homes are looking to purchase in areas close to parents, siblings and other relatives as a way to cut down on the cost of childcare. Out of 700 people surveyed by Realtor.com, 44% said they wanted to move closer to family to get help watching kids.
Not only that, but more people are expressing interest in purchasing homes with plans to live with a relative in order to contain and share costs. About 83% of respondents said they would consider buying a home and living with family or friends to make their housing situations more affordable.
The survey also found that people interested in buying homes in the future are currently taking various approaches that will enable them to save enough money to do so. Common strategies noted by respondents included moving to more affordable areas of the country, moving to cheaper rental properties with fewer amenities, moving in with roommates and other family members, and moving in with parents.
For the foreseeable future, all indications point to more of the same pattern in the U.S. housing market. Seasonal variations may present appealing opportunities to certain buyers, but the overall picture remains one in which many people will choose to defer buying homes in favor of saving for a time when they hope to be able to do so more comfortably.