Home prices in the United States are continuously soaring, pushing more buyers to the sidelines and leading Americans to hope for some relief. However, that is unlikely to come soon, an economist said.
The housing market continues to be unaffordable due to high home prices and elevated mortgage rates. This unhealthy market has led to sluggish sales as most Americans stop buying homes due to the worsening affordability.
To make the housing market healthier and more active again, home prices would need to fall by as much as $121,000 or 28%, per MarketWatch, citing a statement from Redfin economics research lead Chen Zhao.
Zhao's prediction assumed a household is buying a home priced at $383,000. This would equate to roughly $2,500 a month in mortgage payments. A household earning a median income must spend 41% of their income on housing costs.
For context, most experts deem a home affordable if a household does not spend more than 30% of their income on housing costs.
Read also: New York City's Rent Has Increased So Much That Even Workers Making $135,000 Can't Afford It: Report
Are Home Prices Bound To Fall Soon?
Despite the worsening housing affordability, Zhao said home prices are unlikely to fall anytime soon due to a strong demand from potential buyers and a supply shortage.
Instead, the economics expert said home prices would likely continue to grow over time but at a slower pace. Household incomes would also grow faster, giving people more purchasing power. That could later bring the housing payment ratio to household income "closer to a historical norm."
Current Housing Market Condition
As of writing, mortgage rates remain elevated. The 30-year mortgage term settled at 6.53% while the 15-year rate was 5.88% as of Oct. 4, according to Mortgage News Daily. These high rates keep borrowing costs high.
In addition, home prices have been rising since 2021. The median sale price of a home in the US was $432,849 as of August 2024, marking a 3.0% increase from the same month in 2023 and a 16.0% increase from August 2021, per Redfin.
