(TKer.com) - Low financing costs, excess savings, and a demand for more space during the pandemic fueled a frenzy in the housing market that sent home prices surging.
Homebuyers, however, are now confronting an increasingly unaffordable housing market that’s been plagued by shortages.
And with the Federal Reserve forcing financing costs higher in recent months, housing market activity has cooled off considerably.
“Housing is likely just at the beginning of recession,“ Tom Porcelli, chief U.S. economist at RBC Capital Market, wrote on Monday. “Of course, a large amount of activity was pulled forward during the pandemic and then you layer on top of that the sharp rise in rates (monthly mortgage payments up about +60% over the last year) and housing was sure to fall hard.“
Last week came with a flood of housing market data, and none of it looked good for those in the market.
For starters, affordability is a big problem.
According to Zillow’s monthly housing market report released Tuesday, the monthly mortgage payment on the average U.S. home was $1,613 in June, up 4.5% from a month ago and 62.2% from a year ago.
Again, you can thank cash-flush consumers for helping to fuel a housing market boom that caused home prices to surge over the past two years.
More recently, you have a Fed that’s been tightening financial conditions, which has come with surging mortgage rates. This has made affordability worse.
According to Freddie Mac data, the average rate for the 30-year fixed rate mortgage was 5.54% as of July 21. Mortgage rates have surged to levels last seen in December 2008.
High home prices and high mortgage rates have turned off potential home buyers.
According to the Mortgage Bankers Association (MBA), mortgage purchase and refinance application activity last week fell to its lowest level in 22 years. Bill McBride, author of Calculated Risk, charted the slowdown:
“Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand,” the MBA’s Joel Kan said on Wednesday.
This post was originally published on TKer.com.
By Sam Ro · Contributor
