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Top economist offers one word to describe the housing market: Unaffordable – Fortune

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If there was one word to succinctly describe the world of housing at the moment, what would it be—unaffordable, maybe? That’s what it seems to be for Redfin senior economist Chen Zhao, who earlier this week said: “Unaffordability is really the story in the housing market right now.”

In an interview with CNBC, Zhao touched on recently released data, which found that home prices rose 6.5% in March compared to a year earlier; and Redfin’s own data, which found they rose 7.3% in April from the prior year. 

“It doesn’t seem like there’s much relief on the horizon in terms of home-price growth,” she said. “For the average consumer, what that really means is, as long as inventory is very constrained, which it has been for the last couple years or so, home prices really do seem like they will continue to appreciate at a fast rate.” 


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We’re missing roughly 2 million to 7 million homes, according to one estimate. And mortgage rates skyrocketing from their pandemic lows dried up existing supply because nobody wants to sell their home and give up a low mortgage rate for a substantially higher one in the current environment (where the Federal Reserve has raised interest rates several times in an attempt to tame inflation). 

It’s partly why existing home sales fell to an almost 30-year low last year, and are still falling (they dropped close to 2% on a monthly and annual basis in April). Not to mention, pending home sales fell 7.7% in April from March, according to data released today, and all regions across the country saw monthly and annual declines in contract signings. It’s important to note that inventory levels are better than last year, but still lower than typical spring seasons. 

“The impact of escalating interest rates throughout April dampened homebuying, even with more inventory in the market,” National Association of Realtors chief economist Lawrence Yun, said alongside the Thursday release. The hope is that the Federal Reserve will cut interest rates one time this year and that should result in better conditions, or increased supply, and improved affordability, he said. 

In terms of supply (and home values), there is some variation, as Redfin’s Zhao pointed out. The Sunbelt is the place everyone seems to be talking about. In the housing world, at the moment, who you are can influence your perspective on any given area. As an investor, “you’re seeing the most weakness” in the Sunbelt, Zhao said, because there is so much supply that it’s pausing home-price appreciation and in some cases driving down values. Of course, for anyone who wants to buy a home to live in, that’s a good thing.

Either way, “the consensus right now is really that the Fed will hopefully be able to cut by September,” Zhao said. “I think that there is some chance that the inflation data that is coming out in mid-June or mid-July could be a little bit better than expected, in which case July is back on the table… July has the advantage of being a little bit farther away from the election in November.” (There has been some discussion among economists about the Fed’s decision-making and independence in an election year.)

But if you’re a potential homebuyer, the difference between July and September might not matter so much, she said. Still, “we should expect a little bit of rate relief going into the second half of the year.”

Indirectly, an interest rate cut from the Fed would lower mortgage rates, which as of the latest daily reading are sitting at 7.29%—down from the more than two-decade high reached in October last year, at just above 8%, but considerably higher than the sub-3% rates seen throughout the pandemic. 

But here’s the thing: A little more supply (which is expected to come onto the market as mortgage rates ease) won’t solve all. “Home prices are hitting record highs, but the pace of gains should decelerate with more supply,” NAR’s Yun said. “However, the prospect of measurable home-price declines appears minimal.”

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