No. As of right now there are still more buyers than sellers, and that means a meaningful price decline can’t happen in the near future. But that doesn’t rule out a housing marketing issue in the future.
The housing market has long been seen as a reliable investment and a way for average Americans to build wealth.
However, recent data suggests that the current state of the housing market may not be as sustainable as it appears. With the information provided in the video by Graham Stephen, we will examine the factors contributing to the potential bursting of the real estate bubble, including affordability, high unemployment, the potential for a recession, and changing consumer sentiments.
Why are houses so expensive?
One crucial measure of the housing market’s health is its affordability. Experts typically assess this by calculating the percentage of median household income required to make monthly mortgage payments.
According to CNN, the United States currently has the worst affordability rate since 1984, with 38.6% of the median household income required to afford an average home purchase.
Traditionally, a home is considered affordable if this percentage remains below 30%. Sadly, this means that 99% of the United States is deemed unaffordable for an average American earning $71,000 annually.
Realtor.com further underscores this affordability crisis, revealing that the average American needs an income of nearly $110,000 to qualify for an average home with a 20% down payment.
On the expensive West Coast, this income requirement rises to a staggering $161,000. These figures paint a bleak picture for aspiring homeowners, as many are priced out of the market due to skyrocketing prices and stagnant incomes.
High Unemployment Rates
While some may argue that unemployment rates are at a historic low of 3.7%, it is essential to consider the long-term implications of sustained low rates.
Graham Stephen points out that, apart from the 1950s following World War II, the unemployment rate has never stayed below 3.5% for more than a year. Historical data demonstrates that recessions and economic downturns have often been accompanied by rising unemployment rates.
Even more concerning is the fact that the average worker experienced a 6% to 7% income loss for each 1 percentage point increase in the unemployment rate.
If such a scenario were to unfold again, it would exacerbate the affordability crisis, further restricting access to homeownership.
Are we going to have a recession?
According to the chief economist at Realtor.com, the potential for a recession in 2024 poses a considerable threat to the housing market. In such a scenario, housing demand would likely weaken, potentially prompting financial stress among existing homeowners, leading them to sell their properties.
This reversal in the supply-demand balance could have significant implications for the market.
Supporting this analysis, Fannie Mae warns that personal consumption remains at an unsustainable level relative to incomes, and the full effects of monetary policy tightening are still working through the economy.
These concerns suggest that the real estate market may experience increased volatility and uncertainty in the coming years, making it potentially riskier for buyers.
Changing Consumer Sentiments
Consumer confidence plays a crucial role in the stability of the housing market. Graham Stephen’s survey results indicate that the majority of respondents believe that now is a bad time to buy a home.
Only 16% consider it a good time, which is an all-time low. Notably, the top reason cited for this sentiment shift is high mortgage rates, surpassing even high home prices.
The resulting decrease in consumer confidence puts additional pressure on the housing market, potentially leading to a slowdown in sales and price growth.
While the housing market has been booming for several years, there are several indicators suggesting that we may be approaching a bubble that is about to burst.
The combination of worsening affordability, high unemployment rates, the potential for a recession, and changing consumer sentiments creates a challenging environment for the real estate market.
As a result, it is essential for buyers, sellers, and industry professionals to keep a close eye on these factors and adjust their strategies accordingly.
Only through careful analysis and preparation can we navigate the potential challenges and find stability in the ever-evolving housing market.