According to Realtor.com economist Danielle Hale, housing affordability is not expected to improve for prospective home buyers in the near future. This is primarily due to the high cost of borrowing and a lack of available homes on the market. The demand for housing is significantly higher than the supply, leading to a tight market.
One of the main factors contributing to the lack of supply is high mortgage rates. Existing homeowners are hesitant to sell their properties due to the low mortgage rates they secured during the previous decade of low interest rates. This has limited the number of homes available for sale. Additionally, the housing market has struggled with underbuilding for almost a decade, dating back to the aftermath of the 2008 housing crisis. Construction activity has been insufficient, resulting in a shortage of approximately 6 million homes. With the US building around 1 million homes per year, it could take a significant amount of time for builders to catch up.
Furthermore, the largest number of millennials reached the age of 30 in 2020, which marks their prime homebuying years. This has increased competition for homes and further exacerbated the supply-demand imbalance. As a result, home prices remain elevated despite high mortgage rates.
Hale predicts that home prices may slightly decline this year, with Realtor.com revising its forecast from a 5.4% price increase to a 0.6% price decline. However, affordability remains a challenge for buyers, especially with mortgage rates remaining high. Hale notes that it is surprising that prices have not decreased more, but the limited supply of rental vacancies and high rent prices make it difficult for households to find suitable housing, whether renting or buying.
Experts suggest that affordability will only improve when mortgage rates decrease, potentially leading to a surge of existing home inventory hitting the market. However, this is unlikely to happen in the near future. The current average rate on a 30-year fixed mortgage is 6.71% and is expected to only ease to 6.1% by the end of the year, according to Realtor.com's forecast.