Has home ownership become a distant dream?

(image credit: YSN)

Editor’s Note: This article originally appeared on YourSource News (YSN), the official blog of the BrandSource parent company AVB Inc., and has been reprinted with permission of the authors.

Many people view home ownership as a basis for financial security and a cornerstone of family formation and social order. And filling that home with furniture, great appliances and consumer electronics is what keeps BrandSource retailers going.

Unfortunately, it is not a fun time to be looking to buy a house, and it does not matter where you live or where you might be planning to settle down.

It also does not matter if you are a baby boomer, Gen Z or a millennial; you are still affected because America is in the worst part of stock shortages, price increases and bidding wars in its housing history. What helps is if you currently own a home with some equity, have enough cash to cover a payout or have a significant income.

If you thought you would see a return to normalcy when the summer sales season started, that ship has sailed. At the time of writing, interest rates had risen 2.75% over the past year, the Fed was expected to take another significant rate hike, and house prices rose sharply. That being said, it’s not an enjoyable time to be house hunting.

Joe Higgins, Quest 4 Quality

In June, the consumer price index revealed that inflation was still rising as it rose by 8.6% year to date. With that news, the Federal Reserve was expected to move the federal funds rate a further 50 to 75 basis points higher to slow the economy and gently pull back the inflationary spiral plaguing consumers. The effect was, according to consensus, that the 30-year mortgage rate would have exceeded 6% for the first time in 40 years by the end of June.

Let me figure it out for you: If you bought a house on July 1, 2021 and paid $ 500,000, your interest rate would have been 3.04% and your payment would have been $ 2,119. If you bought the same house a year later, your estimated interest rate would be 5.85% and your payment would be $ 2,950. Fewer Americans can afford to buy a home in this country at these levels. Keep in mind that my example did not take into account the 20% increase in housing costs over the past year.

Why is this the case? Experts say housing values ​​have risen significantly faster than incomes, so much so that only 30% of Americans can afford to buy a home. Over the past ten years, according to Zillow, house prices have risen by 34%, while Bank of America says household incomes have risen by only about 13%. In addition, the difference between the rapid escalation in house prices and total household income has become exponentially worse in the years since the pandemic began.

It has become clear that the higher the interest rate, the higher the percentage of our citizens will not be able to afford even newly started housing. It is not easy to say, but it seems that a family with an average income will be locked out of home ownership. Only those with former equity, lots of cash or high incomes can buy medium to higher-end homes, which have now become luxury in America.

So is there any hope? There are some early trends, but these are well into the future. The market is still defined by massive deficits that will not stop soon and higher interest rates that will only get higher.

More houses will return to the market, as sellers do not want to miss the price increase over the past two years, thus raising stock levels. As inventories increase, housing will either fall in price or acceleration will slow down. Bidding wars can disappear as stocks increase. About 17% of Zillow’s IPOs in June showed lower prices, something we had not seen since the pre-pandemic era. Buyers, however, should be careful; the inventory is currently still about 48% smaller than it was in 2019.

So here’s my bottom line about housing: Inventories are getting a little better, but it will be two years before there is any meaningful change in home purchases. Interest rates will have moved above 6% this summer, and sales of single-family homes will slow down a bit. With high equity rates, there will be more home conversions, especially in kitchens. Home values ​​will rise above the historical average, and price acceleration will decline to around 8% over the next year.

If you own a home, be thankful that you do not have to deal with the most chaotic market for decades. And for the sake of retailing goods for the home, let’s hope that these legions of tenants will soon find their dream homes.

This article originally appeared on YourSource News (YSN), the official blog of the BrandSource parent company AVB Inc, and has been reprinted with permission of the authors. BrandSource is a member-owned nationwide purchasing group for independent white goods, furniture, mattress and CE retailers.


About the author
Joe Higgins is a 44-year veteran of GE and Whirlpool Corp. who brings his experience as a business consultant, public speaker, AVB keynote speaker and YSN contributor. Visit his website, Quest 4 Quality with Joe, at www.q4qwithjoe.com.


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