The housing market in the United States is nearing a "vicious cycle" as affordability worsens amid high home prices and elevated mortgage rates.
Speaking at the annual Mortgage Bankers Association (MBA) conference on Monday, Lennar Mortgage's president and MBA chair Laura Escobar made the stark warning.
"We're on the verge of a vicious cycle, in which fewer and fewer people can afford the American dream of homeownership," she said, as quoted by Market Watch. "That's not good for America."
What Is Driving the Housing Market's Soaring Prices?
The housing affordability crisis is being driven by a number of factors, most notably high home prices and mortgage rates.
In the week ending Oct. 24, the contract rate for the 30-year mortgage term was 6.54% while the rate for the 15-year term was 5.71%, according to data from Freddie Mac's Primary Mortgage Market Survey.
Read also: 3 Reasons Why Mortgage Rates Are Still Going up After the Fed's Interest Rate Cut: Report
As of September, the median sale price of a typical home in the US was $428,281, per Redfin. That was 3.9% higher year-over-year.
Behind the rising prices is the country's lack of inventory. In the conference, Escobar said the US is short at least 1.5 million homes. Over-regulation and zoning rules are also making it difficult for developers to build or rehabilitate housing and keep pace with the growing number of households.
"It's now close to impossible," she added.
That is in contrast to estimates from the National Association of Realtors (NAR) in 2023 where the organization said the country is short by four million homes.
How Bad Is the US Housing Affordability Crisis?
Typically, a home is affordable if the cost of buying or renting the property does not exceed 30% of a household's income. Those who spend any more than that are considered "cost-burdened," while households spending 50% or more of their income on housing costs are "severely cost-burdened."
By that standard, at least 31.3% of American households were cost-burdened in 2023. Among those, 27.1% are homeowners paying for mortgages and 49.7% are renters, Pew Research Center reported.
