Housing Prices Plunge, But Affordability Is Still Out Of Reach
Housing prices are dropping quickly across the United States, but families will still be unable to afford homes, experts say.
Housing prices are falling across the United States — and quickly. Although at a glance, that might lead one to think homeownership is becoming a bit more affordable, the reality is far different. Even with home prices dropping, the rise in inflation and mortgage rates will keep homeownership a distant dream for many.
According to Bloomberg, citing data from the S&P index, housing prices dropped for the third straight month in September. The data, released on Nov. 29, found that the price of homes dropped by 2.3% between August and September, going from a 12.9% annual price gain to 10.6%.
“Prices declined in every city in September, with a median change of -1.2 percent,” Bankrate explains. “Year-over-year gains, while still well above their historical medians, peaked roughly six months ago and have decelerated since then.”
Housing costs dropping might lead one to think that, amid a bonkers pandemic housing market, homeownership might be becoming slightly more affordable. But projections show that homeownership may not be possible for many due to increased borrowing costs.
“It all comes down to the Federal Reserve’s aggressive battle against surging inflation,” Insider reports. “As the Fed raises interest rates in an attempt to bring the economy into equilibrium, mortgage rates have reached levels — peaking at more than 7% — not seen since the mid-2000s.”
With the rise of interest rates, mortgage rates are climbing, too. Insider cites data from Realtor.com showing that the typical monthly mortgage payment will jump 28% in 2023. Uh, wow!
“That means the average homebuyer will spend $2,430 a month for shelter — a sizable uptick from the 2022 rate of $1,750,” Insider notes.
Unfortunately, even with the drop in home prices, with the significant jump in mortgage payments, owning a home isn’t going to be any more affordable. And, according to experts, that’s not expected to change any time soon.
“As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be more expensive, and housing becomes less affordable,” Craig J. Lazzara, managing director at S&P DJI, said in a statement to Bankrate. “Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”
Insider reports that predictions for 2023 show home prices are likely to fall further, but housing affordability is expected to fall even lower without interest and inflation leveling off.