Unsettled Foundations of the Housing Market

Chief Economist Eugenio J. Alemán discusses current economic conditions.

Mortgage rates are the highest they’ve been in over 30 years, keeping home affordability in unprecedented territory. However, mortgage rates above 7% aren’t the only factor keeping home prices high. In fact, the low supply of homes is currently the largest contributor to high prices. This is because 61% of outstanding mortgages have a rate of less than 4%, while 90% of mortgages are lower than 6%. Therefore, homeowners who have locked in mortgages lower than today’s rates (whether through purchase or refinancing) are unlikely to put their homes for sale, especially considering the new possibilities given to workers for working from home. The combination of these factors has brought affordability to unprecedented territory, where it may take prospective buyers nearly a decade to save up for a 10% down payment according to a study by Zillow.

National Association of Realtors Housing Affordability Index

The supply of existing homes has improved over the last 12 months but remains at historically low levels. However, the supply of existing homes is unlikely to increase as owners hold onto their comparatively low mortgages, forcing potential homebuyers to consider new constructions. However, while housing data tends to lag by a few months, more timely indicators such as weekly data published by Zillow suggests that despite some recent strength likely due to seasonality, listings of homes for sale continue to decline.

Supply of Existing Homes

Monthly New For Sale Listings on Zillow