Perryman: Housing Headaches

The US housing market continues to struggle, with 2024 sales of existing homes reaching a 30-year low and affordability remaining a major challenge for many potential buyers. Although the most recent data shows some signs of improvement in selected measures, other problems are persisting. Let’s hit a few high points. 

May sales of existing homes across the nation were up slightly compared to April (on a seasonally adjusted basis) but were down compared to last May. Sales of new homes were also down. Uncertainty across the economy is one factor giving buyers pause, but the other major issue is high cost due to prices, interest rates, and escalating insurance rates. 

Prior to the pandemic, median sales price levels for US homes were trending in the $325,000-$350,000 range. Beginning in early 2020, however, prices surged as people sought larger homes and changed geographic locations in response to COVID-19. By late 2022, the median sales price reached $442,600. Though down to $416,900 most recently (somewhat higher for new homes), it remains a major escalation in just a few years’ time. 

Part two of the affordability problem is interest rates. The Federal Reserve responded to the pandemic with low interest rates, and mortgage rates were below 3% for much of 2020 and 2021. As conditions changed and inflation became a major problem, the Fed pushed interest rates up quickly, and mortgage rates topped 7% by late 2022 and were even higher at points in time. The most recent data indicates some relief, but not much. 

It’s no coincidence that home prices and interest rates moved in opposite directions; buyers paying 3% interest could (and did) take on larger principle amounts and still afford payments. However, the housing market is now somewhat stuck. High prices without low interest are squeezing many buyers out of the market. To make matters worse, with higher building costs and more weather events, insurance rates are up 34% nationally and over 50% in several states.

Even though new homes have been getting somewhat smaller over the past few years, prices remain elevated. The situation is particularly challenging for starter homes, and the income required to qualify to purchase one is well beyond the resources of many families. As a result, the age of first-time home buyers is also up since the pandemic. 

It will likely take a while for real improvement. Housing supplies are finally beginning to recover, contributing to a better market for buyers. However, the Fed will probably hold interest rates steady for now. Other costs of homeownership are also more expensive than in the past, further slowing market recovery. It may well take a while to work through the various imbalances, but we’ll get there. Stay safe! 

Editor’s Note: The above guest column was penned by Dr. M. Ray Perryman, president and chief executive officer of The Perryman Group (www.perrymangroup.com). The Perryman Group has served the needs of over 3,000 clients over the past four decades. The above column appears in The Rio Grande Guardian International News Service with the permission of the author. Perryman can be reached by email via: shelia@perrymangroup.com.

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