October 3, 2023
U.S. Home Prices Hit an All Time High in July
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U.S Home prices hit an all time high in July while affordability dropped to new lows. How can home prices continue to rise, while affordability drops? The main culprit seems to be a lack of inventory due to limited building of new homes and Americans who are staying put in homes with debt that was financed at very low rates.
If you are considering moving to a new home, would you leave a rate of 3% to go to a rate of 7.2%? Not likely, so affordability continues to plummet as rates go up, but prices aren’t yet in a downward spiral.
I’m curious to see what will be the tipping point here. Will demand fall enough to finally bring prices down? Will the Federal Reserve lower rates at some point in 2024 due to softness in the economy, making home ownership more affordable?
As you can see, affordability closely followed the home price index for many years and we haven’t seen a gap this wide in the indexes since at least the mid 1980’s. The Federal Reserve is walking a tightrope here as they seek to tame inflation with higher rates, but they may be causing significant distress in the economy.
At times like this, patience would seem to be the best medicine. Home buyers would be best served to wait until home prices and affordability right themselves.
Source: @charliebilello on #twitter