Will Homes Be Affordable Again?

Will Homes Be Affordable Again cover picture shows a couple buying a new home.

Will Homes Be Affordable Again?  The Housing Market Outlook: Will Prices Crash or Keep Climbing?


The housing market has been a rollercoaster ride in recent years, with soaring prices, skyrocketing mortgage rates, and a looming threat of recession. Amidst this tumultuous landscape, one question is on everyone’s mind: Is the housing market going to crash? Homebuyers, sellers, and industry experts alike are closely watching the market’s trajectory, trying to decipher the signs and prepare for what’s to come. In this blog post, we’ll delve into the current housing market dynamics and explore the factors shaping its future.

Will Homes Be Affordable Again?  Understanding the Current Housing Market Landscape

First and foremost, it’s crucial to grasp the current state of the housing market. Despite the challenging economic conditions, the market has demonstrated remarkable resilience. In fact, according to the National Association of Realtors (NAR), median existing-home prices continued to rise, increasing by 4.4% year-over-year in December 2023. This upward trend defied expectations and challenged the notion of a “housing recession” that many had anticipated.

Moreover, the lack of housing supply remains a persistent issue. NAR’s data for December 2023 revealed a mere 3.2-month supply of housing inventory, significantly below the 5 to 6 months considered a healthy, balanced market. Consequently, the imbalance between supply and demand continues to exert upward pressure on home prices.

Will Homes Be Affordable Again?  The Impact of Mortgage Rates

One of the most significant factors influencing the housing market is the fluctuation of mortgage rates. In late 2022 and early 2023, mortgage rates soared to heights not seen in over 23 years, peaking at around 8% in October 2023. These skyrocketing rates dealt a severe blow to affordability, making it increasingly challenging for potential buyers to enter the market.

However, the tides have since turned, with mortgage rates experiencing a notable decline in recent months. As of February 2024, the average rate for a 30-year fixed mortgage stood at 6.89%, according to Bankrate’s national survey. While this rate is still relatively high compared to the record lows of the past few years, it represents a welcome relief for prospective homebuyers.

Consequently, the impact of mortgage rate fluctuations cannot be overstated. As Greg McBride, Bankrate’s chief financial analyst, aptly puts it, “The potential for a decline in mortgage rates intersects with the prime homebuying time of the year — if you can find one to buy, that is.”

Will Homes Be Affordable Again?  The Resilience of the Housing Market

Despite the challenges posed by high mortgage rates and economic uncertainty, the housing market has shown remarkable resilience. Industry experts agree that a significant price crash akin to the Great Recession is highly unlikely. Mark Fleming, chief economist at First American Financial Corporation, explains, “There’s just generally not enough supply. There are more people than housing inventory. It’s Econ 101.”

Moreover, the personal balance sheets of current homeowners are much stronger than they were during the housing bubble of the mid-2000s. According to a December Realtor.com report, two-thirds of all current mortgages have rates below the 4% mark, providing homeowners with a financial cushion against rate fluctuations.

Additionally, the lessons learned from the Great Recession have shaped the behavior of builders, who have been cautious about their pace of construction. This measured approach has contributed to the ongoing shortage of homes for sale, further bolstering the market’s resilience.

Will Homes Be Affordable Again?  The Pent-Up Demand Factor

One factor that could potentially fuel a housing market boom is the pent-up demand from would-be buyers who have been waiting on the sidelines for more favorable conditions. As Dave Liniger, the founder of real estate brokerage RE/MAX, points out, “You’ve got an entire generation of pent-up demand.”

If mortgage rates continue to decline, it could unleash a flood of new buyers into the market, potentially driving up home prices once again. Liniger warns, “When interest rates do start to come down, it’ll be another boom-and-bust cycle.”

Will Homes Be Affordable Again?  The Generational Divide

Interestingly, the housing market outlook appears to vary across different generations. According to a recent survey by Realtor.com, the youngest buyers, Gen Z and millennials, are the most determined to become homeowners, even in the face of high mortgage rates.

The survey revealed that nearly half of Gen Z buyers expect to be able to afford a home within the next five years, while almost half of millennials and more than a third of Gen Z would still purchase a home even if mortgage rates topped 8%.

In contrast, older generations, such as boomers and Gen X, displayed less optimism about their homebuying prospects, with only a quarter of boomers and a third of Gen X feeling confident about affording a home in the near future.

Will Homes Be Affordable Again?  The Role of Affordability

Despite the resilience of the housing market, affordability remains a significant concern for many prospective buyers. According to Realtor.com’s January 2024 Housing Market Trends Report, high mortgage rates have increased the monthly cost of financing the typical home by 5.4% since last year, equating to an additional $108 in monthly payments compared to January 2023.

This erosion of affordability is particularly challenging for first-time buyers struggling to break into the housing market. As Skylar Olsen, chief economist at Zillow, warns, “We’re not in that space where things are suddenly going to be more affordable.”

Will Homes Be Affordable Again?  The Foreclosure Factor

While the housing market has shown resilience, it’s essential to consider the potential impact of foreclosures. According to ATTOM Data Solutions, there were 30,314 U.S. homes with foreclosure filings in December 2023, a decrease of 6% from the previous month and 2% from a year ago.

However, it’s worth noting that Maryland had the highest foreclosure rate of any state in December, with one foreclosure filing for every 2,570 housing units. While foreclosure rates remain relatively low on a national scale, localized spikes could potentially impact specific housing markets.

Will Homes Be Affordable Again?  The Outlook: Modest Correction or Continued Climb?

So, what does the future hold for the housing market? While opinions vary, most housing economists and analysts agree that a significant crash is unlikely. Instead, the consensus seems to be a modest correction or a continuation of the current upward trajectory, albeit at a slower pace.

Lawrence Yun, NAR’s chief economist, encapsulates this sentiment, stating, “Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”

Rick Arvielo, head of mortgage firm New American Funding, echoes this view, asserting, “You’re not going to see house prices decline. There’s just not enough inventory.”

Will Homes Be Affordable Again?  Conclusion

In conclusion, the housing market has proven its resilience in the face of adversity. While challenges persist, including affordability concerns and the potential impact of foreclosures, the overall outlook remains cautiously optimistic. The combination of pent-up demand, generational shifts, and the ongoing supply-demand imbalance suggests that a significant price crash is improbable.

However, the path forward is unlikely to be a smooth one. Fluctuations in mortgage rates, economic conditions, and regional variations will continue to shape the housing market’s trajectory. Prospective buyers and sellers alike must remain vigilant, closely monitoring market trends and seeking guidance from experienced professionals.

Ultimately, the housing market’s future will be determined by a complex interplay of factors, some within our control and others beyond our influence. What is certain, however, is that the dream of homeownership remains alive, albeit with evolving challenges and opportunities. By staying informed and adapting to the ever-changing landscape, both buyers and sellers can navigate the housing market with confidence and make informed decisions that align with their goals and aspirations.

Will Homes Be Affordable Again?  The St. Petersburg Housing Market: A Case Study

While national trends provide a broad overview of the housing market, it’s also important to examine local dynamics. One city that has captured the attention of industry experts is St. Petersburg, Florida. This vibrant coastal city offers a unique perspective on the state of the housing market and the challenges faced by both buyers and sellers.

St. Petersburg has long been a popular destination for retirees and those seeking a laid-back lifestyle, but in recent years, it has also attracted a growing number of young professionals and families. This influx of new residents has put tremendous pressure on the local housing market, resulting in a supply-demand imbalance that has driven up prices significantly.

According to data from the St. Petersburg Area Association of Realtors, the median sale price for single-family homes in the area reached $375,000 in January 2024, a staggering 15.4% increase compared to the same period in 2023. This rapid appreciation has priced many would-be buyers out of the market, particularly first-time homebuyers and those on more modest incomes.

Will Homes Be Affordable Again?  Inventory

Furthermore, the limited inventory in St. Petersburg has created a highly competitive environment, with homes often receiving multiple offers and selling above the asking price. In January 2024, the city had only a 1.6-month supply of available homes, well below the balanced market benchmark of 5 to 6 months.

Despite the challenges, the St. Petersburg housing market remains attractive to investors and those seeking a slice of the Florida lifestyle. The city’s vibrant arts and cultural scene, renowned beaches, and burgeoning tech and healthcare industries continue to draw new residents, fueling the demand for housing.

Notably, the generational divide observed at the national level is also evident in St. Petersburg. Local real estate agents report a surge in interest from younger buyers, particularly millennials and Gen Z, who are drawn to the city’s urban amenities and outdoor recreational opportunities. However, many of these potential buyers are grappling with affordability concerns, as the combination of high home prices and rising mortgage rates has made homeownership a daunting prospect.

In contrast, older generations, such as boomers and Gen X, are more likely to be existing homeowners in the area, benefiting from years of home equity growth. For these residents, the decision to sell or stay put is influenced by factors such as retirement plans, the desire for a lifestyle change, or the need for a larger or smaller home.

Will Homes Be Affordable Again?  Conclusion

As the St. Petersburg housing market continues to evolve, local officials and industry experts are exploring strategies to address the supply-demand imbalance and promote affordable housing options. Initiatives such as zoning changes to encourage higher-density development, incentives for builders to construct more affordable units, and programs to assist first-time buyers are being considered.

The St. Petersburg housing market serves as a microcosm of the broader national trends, highlighting the challenges and opportunities faced by buyers, sellers, and policymakers alike. While the path forward may be complex, one thing is clear: the appeal of this vibrant coastal city shows no signs of waning, ensuring that the housing market will remain a topic of keen interest for years to come.

If you are looking for a St Petersburg Realtor visit https://avalongrouptampabay.com/

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About the Author
Rob Johnson
Realtor, St. Petersburg FL