This real estate analyst said the US is mired in a 'very savagely unhealthy' housing market — here's why and what you can do about it

Chris Clark
This real estate analyst said the US is mired in a 'very savagely unhealthy' housing market — here's why and what you can do about it
This real estate analyst said the US is mired in a 'very savagely unhealthy' housing market — here's why and what you can do about it

Is the housing market officially on ice? Or rapidly moving toward a deep freeze? While no formal benchmark for a real estate recession may exist, make no mistake — skyrocketing mortgage rates and dwindling supplies are sending chills through this crucial sector of the U.S. economy.

When mortgage rates exceeded 6% in 2022, the nation experienced a historic drop in home sales.

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At the end of the summer, real estate analyst Logan Mohtashami of HousingWire warned in that 8% isn’t far behind — a potentially prohibitive rate that would fuel a “very savagely unhealthy” market for buyers and sellers alike.

With rates sitting in the 7.5 to 7.75% range so far in November, how did we get here? And how can you navigate an incredibly tricky and potentially expensive real estate market in an otherwise robust economy?

Why the housing market is struggling

The U.S. housing market has been riding a rollercoaster for years. Mohtashami’s description of the market may seem severe, but it aptly underscores the core conditions that confront both buyer and seller:

Supply and demand imbalance. There simply aren't enough homes available to meet the demand from potential buyers. The shortage is driving up prices, making it increasingly difficult for first-time and move-up buyers to afford a home. Mohtashami says the rising rates only make things worse because they trap buyers and sellers in a “waiting game.” For buyers, the challenge is obvious: Higher prices and rates equal higher monthly mortgage payments.

Remember, however, that higher prices are great for sellers — that is, until they become buyers too. And that factor keeps many would-be sellers on the sidelines and inventories low.

Construction and labor shortages. The construction industry is grappling with the double whammy of rising material costs and a shortage of skilled builders and subcontractors. That’s led to delays in home construction and renovations, further limiting the supply of new builds and older homes.

High home prices. Home prices have soared, outpacing wage growth for many Americans even in a hot job market. That presents major hurdles for individuals and families trying to save for a down payment. Even those with plenty saved and excellent credit scores will find they’re faced with high rates — when just a year ago they might’ve scored a much lower rate.

Competition and bidding wars. Limited housing supplies force buyers into bidding wars, which drive up prices, frustrate losing bidders and scare off others from the home sales market.

Read more: Super-rich Americans are snatching up prime real estate abroad as US housing slumps — but here's a sharp way to invest without having to move overseas

What you can do about it

Even with all this working against them, would-be buyers have options to optimize their purchasing power.

Be realistic. If you're in the market to buy, set reasonable expectations vis-a-vis location, size and how much you can truly afford. Beyond what any lender says you qualify for, understand that you might not find your dream home in your desired price range. Prioritize your needs and prepare to compromise.

Get pre-approved. A mortgage pre-approval gives you an edge in a hot market. Sellers are more likely to take your offer seriously once you have it because it shows you're a committed and qualified buyer. Your pre-approval letter will also help you better understand your financial boundaries.

Explore down payment assistance. Look into down payment assistance programs that might be available in your area. These programs can help first-time buyers bridge the gap if their savings fall short of the required down payment with cash grants, low-rate loans and tax incentives for eligible buyers. You might have to do some research and paperwork, but a $25,000 grant for filling out an application is still a pretty sweet deal.

Focus on financial health. While homeownership accessibility faces an uncertain future, focusing on your current financial health through paying down debts and increasing your savings can put you in a better position financially and mentally. Once the market rebounds in your favor, you’ll be in a more stable place to begin your homeownership journey.

Consult professionals. Real estate agents, financial advisers and mortgage brokers can provide valuable insights tailored to your specific situation. Programs exist that offer free financial advice, so even if you’re tight on cash, don't be afraid to seek out experts and ask for help. These include the Financial Planning Association (FPA), which provides pro bono financial planning to underserved communities through volunteer advisers.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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