The Housing Crisis

Existing Housing

Over the last year the real estate market has been hot, but it may be over-heating. Some experts feel that the present real estate environment is reminiscent of the period prior to the housing market meltdown of 2008, but not for the same reasons. There’s just a limited inventory in the existing market for homes valued at $500,000 or less. That’s the price range for most Americans. What’s left in that demographic is “fixer uppers.” As you enter the $500,000 to a million range, it’s a seller’s market. Homeowners are now calling the shots. Bidding wars have erupted between buyers. And if you haven’t secured your bank loan before offering a bid, you’re not a player from the seller’s point of view. 

New Housing

New construction is slowing. Not because there is no market but because there are not enough laborers. A labor shortage is slowing down new home builds for the average homeowner searching for new construction in the $300,000 to $500,000 sales range and there is no relief in sight. The politics of this could be explosive. Undocumented immigrants occupy millions of homes in America, but we need a greater labor force to continue to grow. It’s a catch 22.

Rising Mortgage Interest Rates

The Fed started to raise rates last year based on the fear of inflation. An eighth of a point here and there is one thing, but if the rates continue to rise quickly, no matter how small the increases are, it could drive the fixed 30-year mortgage rates to 5%. That rate is still historically low, but it may be the tipping point that causes many buyers to stay put for now.

Rental Units

Many Millennials find themselves buried in student loan debt and unable to qualify for a mortgage. Others in their late 30s and early 40s have little to no down payment. Even first time buyers may be out because they can’t secure 3.5% down payment. 

All these factors could lead to a housing crisis that could also affect the baby boomers looking to downsize their homes in retirement. It could all contribute to the perfect storm that America is not ready to weather.