Housing Market Experiences A Modest Deceleration, With Foreign Investments Cooling and Younger Generations Bracing for Greater Challenges

The following article includes views from Reports on Housing by Steven Thomas and other economic experts. It is not a reflection of the opinions, views, or predictions of Nuvision and its representatives. 

The U.S. housing market is slowing down from its previously frantic pace, characterized by escalating rates that have led to homes staying longer on the market, according to real estate expert Steven Thomas. As the average market time has stretched due to mortgage rates rising above 7%, home affordability is being squeezed simultaneously. On top of that, increased everyday expenses, reflected in heightened prices for gas and groceries, are forcing many people to reconsider their spending habits, including purchasing homes at these escalated rates.

"Buyers' wallets are stretched, and fewer and fewer can afford homes with these sky-high rates," commented Steven Thomas. He says that the inflation in daily commodities and the housing market has caused a noticeable surge in the 30-year fixed rate from 3.25% in January 2022 to over 7% later that year. Despite an easing to 5.99% in February this year, the rates have steadily climbed, hitting 7.49% on August 21st, the highest in nearly 23 years.

As the real estate market grapples with inflated rates, the challenges are hitting millennials and Gen Z, who are on the cusp of resuming student loan payments in October, according to Market Insider. The end of the moratorium on these payments is predicted to deliver a "major financial shock" to young adults, as noted by Moody's Analytics, with many born between 1979 and 1998 juggling resumed payments with soaring living costs and inflation.

Moody's recent study illustrates a grim future where households might have to diminish discretionary spending or face harsh housing decisions such as downgrading rental units or moving in with family or friends to sidestep homelessness. These dynamics threaten to reduce the quality of life for one out of three Americans aged between 20 and 44, a demographic with the most substantial portion of student loans.

Furthermore, data from America's National Association of Realtors (NAR) underscores the declining interest of foreign buyers in the overheated U.S. housing market. In a year that saw a 9.6% decline in annual foreign investment in U.S. existing-home sales, amounting to $53.3 billion, the number of homes sold reached its lowest since 2009. Although the purchase prices hit a record high, the notable decrease in sales signals a cooling interest from international buyers from China, Mexico, Canada, India, and Colombia.

While the U.S. grapples with a decreased foreign interest, the escalating national debt adds to the multi-faceted problem. With a $1.5 trillion increase since the last debt ceiling crisis, the debt has increased at an average of $500 billion per month over the last quarter. The Congressional Budget Office (CBO) predicts a potential $2 trillion deficit slated for next year.

Amidst this seemingly bleak housing landscape, a silver lining emerges for existing homeowners in the U.S. Data from NAR. According to their report, there has been a substantial increase in the median price of houses in the United States over the last decade, with a valuation growth of $190,000. If you've owned a house for over three years or so, you're likely sitting on some nice gains, creating a potential cushion against the harsh economic realities for homeowners.

As the U.S housing market experiences a moderate deceleration, the combined forces of increased market time, soaring rates, impending student loan payments, and receding foreign investments are creating a complex narrative. While challenges persist, especially for the younger generations and potential foreign investors, existing homeowners find themselves in a favorable position, potentially poised to leverage their home's appreciated value.