The Housing Market Reaches An ‘Affordability Turning Point’

The housing boom witnessed over the past two years may finally be drawing to a close, as indicated by mortgage and sales data.

Since the beginning of 2022, 30-year fixed mortgage rates have surged from slightly over 3% to well above 5% — causing a slump in demand for new purchase loans and refinancing services. A Tuesday report from the U.S. Census Bureau confirmed that sales of new single-family homes in April fell to 591,000 — falling far short of the 750,000 expected by analysts, as well as 16.6% below home sales in March.

Although sale activity has slumped to its lowest level since the onset of COVID-19 and the lockdown-induced recession, the median sale price in April was $450,600 — nearly 20% above prices at the same time last year.

David Bahnsen, the founder of Manhattan-based wealth management firm The Bahnsen Group, told The Daily Wire that there is “no ambiguity” around the reason for the drop in home sales.

“It is affordability,” Bahnsen explained. “Rising rates on top of bubble-level prices have made housing less affordable, and now that has caught up with transaction activity.”

Indeed, the residential real estate market is becoming less friendly to households amid both phenomena. “As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation,” government-backed mortgage company Freddie Mac said last month.

Bahnsen observed that higher rates and soaring prices have reached an “affordability turning point.”

“My expectation remains that it will not become evident in prices just yet — as rather than transact at lower prices sellers simply don’t sell for a time — but then later in the year, we begin to see price levels decline as well, with those declines accelerating in 2023,” Bahnsen forecasted.

The sharp increase in mortgage rates is largely due to actions from the Federal Reserve to taper its quantitative easing regime. In a preliminary effort to curb inflation, the Fed increased interest rates by a half point earlier this month — which marked the largest rate hike since May 2000 and followed a quarter point increase from the near-zero levels that have prevailed since early 2020.

Heritage Foundation research fellow Joel Griffith told The Daily Wire that moving forward, buyers can expect a wider selection of homes and increased buying power — even as mortgage payments remain high.

“A $1,600 mortgage payment could finance a $400,000 purchase one year ago — but only a $300,000 purchase today,” Griffith commented. “Sellers can anticipate buyers far more eager to haggle lower on price and longer sales time. And many sellers may be unpleasantly surprised to see their mortgage payments on their next home substantially higher — even if their mortgage balance is smaller.”

More broadly, there are mismatches between supply and demand that continue to plague the housing market. Construction of new long-term housing has already been slowing over the past several decades — resulting in 6 million too few homes on the market.

As The Daily Wire’s Cabot Phillips explained on a recent episode of “Morning Wire,” some experts believe that “until the supply of houses meets the overwhelming demand that we’re seeing right now, prices will continue to rise.”

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