Those holding out hope for a housing crash are setting themselves up for disappointment.
asserted
Those → hold → disappointment
American home prices would need to plunge nearly a third to make today’s punishing mortgage rates as affordable as the loans millions of existing homeowners are sitting on.
asserted
millions → need → homeowners
The median US home sold for $429,100 in August, but at today’s mortgage rates, that price would have to tumble 32% to about $291,181 for a new buyer’s monthly payment to match that of the typical current mortgage holder, according to a new Barron’s analysis.
uncertain
payment → sell → analysis
To put that staggering figure in perspective, US home prices fell about 27.5% from their 2006 peak through September 2010 amid the housing crash and financial crisis, according to Federal Reserve data — meaning a 32% plunge would be even worse.
uncertain
plunge → put → data
Nadia Evangelou, director of research at the National Association of Realtors, told Barron’s she doesn’t expect prices to fall by anything close to that amount.
asserted
prices → tell → amount
The brutal math illustrates just how dramatically the surge in borrowing costs has reshaped the housing market — and why homeowners who locked in rock-bottom rates during the pandemic have so little incentive to move.
asserted
who → illustrate → incentive
The typical existing mortgage holder has a 3.88% rate and pays $1,597 a month, according to ICE Mortgage Technology data cited by Barron’s.
uncertain
holder → exist → Barron
But mortgage rates have recently surged to around 7.3%.
asserted
rates → surge → %
At that rate, a buyer putting 20% down on the $429,100 median-priced home would face a monthly principal-and-interest payment of about $2,353 on a 30-year mortgage, Barron’s calculated.
asserted
Barron → put → mortgage
That’s $756 more every month — or roughly 47% higher — than the median payment shouldered by current mortgage holders.
asserted
That → ’ → holders
To get that payment back down to $1,597 without a drop in rates, the home’s price would need to sink to roughly $291,181.
asserted
price → get → 291,181
The enormous gap helps explain the so-called mortgage-rate lock-in effect that has dogged the housing market since borrowing costs began climbing.
asserted
costs → explain → market
Millions of Americans refinanced or purchased homes when mortgage rates plunged during 2020 and 2021.
asserted
rates → refinance → 2020
Those loans have become increasingly valuable as prevailing rates have more than doubled.
asserted
rates → become → ?
Rick Palacios Jr., director of research at John Burns Research & Consulting, described those ultralow pandemic-era mortgages as becoming a “generational scourge” as they discourage homeowners from putting their properties on the market.
asserted
they → describe → market
The result has been a stubborn shortage of existing homes for sale in many parts of the country, even as would-be buyers struggle with a combination of elevated prices and borrowing costs.
And homeowners hoping that mortgage rates will simply return to pandemic-era levels may be waiting a while.
Persistent inflation and elevated bond yields offer little reason to expect a dramatic decline in mortgage rates in the near term, according to Barron’s.
uncertain
inflation → exist → Barron
A 32% collapse in home prices isn’t the expected solution, either.
asserted
collapse → expect → prices
Evangelou says affordability is more likely to improve gradually through some combination of lower mortgage rates, rising incomes and slower home-price growth.
asserted
affordability → say → rates
Homeowners do have one major financial advantage: enormous amounts of accumulated equity.
asserted
Homeowners → have → equity
US mortgage holders collectively have a record $17.9 trillion in home equity, according to property-data firm Cotality, amounting to an average of about $310,000 per homeowner.
But even that wealth doesn’t necessarily solve the problem for someone trying to trade one home for another.
uncertain
wealth → have → another
“Having record equity doesn’t necessarily help that much, because everyone else has record equity, too,” Cotality principal economist Thom Malone told Barron’s.
asserted
Malone → have → Barron
And homeowners can’t always wait for the housing math to improve.
asserted
math → wait → ?
Divorce, job changes, growing families and retirement continue to force people to move regardless of where mortgage rates stand, Malone noted.
asserted
Malone → grow → people
For those homeowners, giving up a 3% or 4% mortgage for a new loan above 7% can make the next house dramatically more expensive — even if its sticker price isn’t much higher than the home they leave behind.
asserted
they → give → home
For prospective first-time buyers trying to get skin in the game, the figures prove even more brutal.
asserted
figures → try → game
The Aporia
