Home News The historic deterioration in the U.S. housing market, as told by 3 charts

The historic deterioration in the U.S. housing market, as told by 3 charts

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In the eyes of a residential bull, pandemic housing boom We entered 2022 with a lot of gas left in the tank. Work from home purchases remained strong.The US housing market was still in its midst 5 year stretch Millennials born in the generation’s five biggest birth years reached the all-important first-home-buying age of 30, and it stayed that way. Poorly constructed by the millionsFinally, tough lending standards coupled with a strong economy have reduced the likelihood of bad debt sales to zero.

Fast forward to October and the housing bulls were clearly wrong. Not only has the pandemic housing boom gonebut Fed Chairman Jerome Powell Replaced with “hard fix”. Simply put, a combination of favorable demographics, tight supply, and ‘plain vanilla’ lending It wasn’t enough to stop housing adjustments.

How did they get it so wrong? It boils down to housing affordability. Soaring mortgage rates Coupled with bubbled house prices This makes this a historically affordable housing market. In fact, it’s more expensive to buy now than it was at the height of the housing bubble in the 2000s.

“Affordability has evaporated, and with it the demand for housing,” said Mark Zandy, chief economist at Moody’s Analytics. luck.

to understand how The affordability of pressurized housing islet’s look at the data.

View this interactive chart on Fortune.com

Back in March, luck reported Economic shock hits the housing market,” The US housing market was expected to enter a slowdown mode as mortgage rates soared from 3.2% to 4.2% in just three months. that’s exactly what happened.

Of course, affordability has continued to deteriorate since this spring. As of Tuesday, The average interest rate for a 30-year fixed mortgage is 7.14%.This is both the highest mortgage rate since 2002 and the biggest 12-month jump since 1981 (see chart below). Interest payments for the duration of the 30-year loan. Now, at a rate of 7.14%, that monthly payment would be $3,374.

The Federal Reserve does not directly set long-term interest rates like it does mortgage rates, but it does set short-term Federal Funds rates.If the financial markets believe federal funds rate If interest rates continue to rise in the future, there will be upward pressure on long-term interest rates. That’s exactly what the financial markets have done this year. Federal Reserve Switched to Fighting Inflation Mode.

Where will mortgage rates go next? Hard to say. For the 2023 spring shopping season, Moody’s Mortgage rates are expected to fluctuate around 6.5%, Fannie Mae expects 30-year fixed rates to average 6.4% in 2023..

View this interactive chart on Fortune.com

In its latest figures, Moody’s calculates that the US rural housing market is largely “overvalued.”For that 210 housing marketsIncludes Boise (77% overvalued) and Las Vegas (60% overvalued).

Simply put, the pandemic housing boom has caused U.S. housing prices to skyrocket.

It’s important. Historically speaking, Housing market goes into recession-A period of declining levels of housing sales and construction starts-A ‘severely overvalued’ housing market Home price declines are usually the most risky. The big corrections in home prices in places like Boise and Las Vegas that started this summer have proven this rule of thumb once again.

face forward, Moody’s now expects US home prices to fall 10% from peak to troughIf a recession materializes, Moody’s expects US house prices to fall 15% to 20% from peak to trough. But it’s nationwide.of A ‘severely overvalued’ housing marketThe company expects home prices to fall between 15% and 20%. If a recession hits, the company expects home price declines to widen from 25% to 30% in a “severely overvalued” housing market.

View this interactive chart on Fortune.com

After all, it’s not just mortgage rates or home price numbers. Instead, the affordability of the housing market comes down to new monthly mortgage payments on the buyer’s income. If the borrower can’t meet the lender’s strict debt-to-income limit, they’re not buying.

In that regard, things don’t look good to potential buyers.

Across America’s 50 largest regional housing markets, typical new mortgage payments surged 69% in the first nine months of 2022. This is according to an analysis conducted by Zonda, a real estate research firm.

“Home affordability is driven by many factors, but two key inputs are home prices and mortgage rates.” Zonda Chief Economist Ari Wolff said: luck“But interest rates have risen dramatically since the beginning of the year, putting a strain on housing affordability. It was starting to drive prices down from the 1980s, and millions of Americans continue to lose their home ownership.”

As Home prices soared during pandemic housing boomthe borrower was protected to some extent. 2% and 3% mortgage interest rates Make record home prices manageable. But soaring mortgage rates mean buyers are bearing the brunt of the pandemic housing boom, which has pushed U.S. home prices up 43%.Of course, that affordability squeeze is why we’re here housing correction.

I want to get the latest information housing correction? Follow me please twitter and @News Lambert.

This story was originally Fortune.com

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