Today, less people are buying houses. According to Fannie Mae, a mere 24% of Americans feel like now is a good time to buy a house. Looking back to 2013, when 54% of consumers were confident in the housing market, it feels like a lot has changed in a small amount of time. It’s clear that the certainty of prospective homeowner is waning.
Houses are getting more expensive — period. A recent Zillow report found that the median home value is around $1 million in 197 different cities. This year alone saw the addition of 23 more cities to this not-so-exclusive club.
This data is not reflective of metropolitan areas alone, and, in fact, this trend should concern any prospective homeowner regardless of location. According to a National Realtors Association report, the median price of a single family home is nearly $50,000 more expensive than two years ago.
According to Pew Research, “Today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.”
The rise in house prices is far outpacing salary growth, and this has serious implications on the financial mobility of American families. In the current market, 1 in 200 people will experience home foreclosure, and anyone who undertakes homeownership without a very reliable income stream runs the risk of becoming one of these statistics.
One of the greatest threats to the housing market is the consumer habits of young people. Millennials have already ruined Applebees and golf, and some experts predict the housing market could be the next victim of emerging consumer trends.
According to Business Insider, millennials are buying homes at a slower-than-usual rate. In the past, 25–34 was the typical age to start shopping for houses, but it seems millennials are lagging behind. Data shows a major deterrent for young people is saving enough money for a down payment.
Financial inhibitors aside, there is a more universal reason millennials aren’t buying houses: young people simply have a different set of values. They are holding off on marriage, having kids older, and moving frequently.
Mortgage interest rates have reached an all time high of 4.66% — an entire percent higher compared with this time last year, and a record high since 2011.
A minor interest rate increase is not worth losing sleep over, but even a little bump can have a huge effect on the cost of homeownership. For example, 3/4 of a percentage point increase in mortgage rates would increase the monthly payment of a $200,000 mortgage by about $85.
As established above, first-time owners are already nervous about plunging into the housing market pool, but high mortgage rates impact another, surprising, demographic: current homeowners.
Homeowners that would normally sell their houses and upgrade to bigger ones are staying put due to high interest rates. It simply doesn’t make financial sense to forfeit a low interest rate for a higher one. High interest rates prevent mobility — someone who might have owned three houses in a lifetime will generally stick to one to avoid unreasonably high interest payments. This is bad for the housing market and even worse for anyone looking to own more than one house in a lifetime.