The housing affordability crisis in the United States, marked by high prices and elevated mortgage rates, pushed buyers to the sidelines last year. Despite having more inventory on the market, the trend may still continue unless prices fall or wages rise.
November data from real estate website Redfin showed the median sales price of a typical home in the US reaching $430,010, marking a 5.4% increase year-over-year. The contract rate on an average 30-year mortgage term rose to 6.91% in the week ending Jan. 2, while the contract rate for the 15-year term increased to 6.13%, per Freddie Mac.
The soaring prices are leading to a worsening affordability crisis. Unfortunately, the trend may continue unless home prices fall by 40% or wages increase by 70%, according to Bezinga, citing Moody's Analytics economist Matthew Walsh.
What Would Those Figures Look Like?
If home prices fall by 40%, the median sale price would be $258,006. Assuming a buyer puts a 20% down payment of $51,601, the average monthly mortgage payment would be $1,361 for those with a rate of 6.91% for a 30-year term and $1,763 for people with a rate of 6.13% for a 15-year term.
As of the third quarter of 2024, the median weekly earnings of full-time wage and salary workers in the US was $1,165, data from the Bureau of Labor Statistics showed. That would equate to $60,580 annually. If it increases by 70%, that means American workers would earn $1,980 every week or $102,986 per year.
What Are the Forecasts for US Real Estate in 2025?
For this year, real estate experts are expecting home prices to continue growing, though at a slower pace. The National Association of Realtors (NAR) predicts a price growth of 2%, Zillow predicts a 2.6% increase, while Realtor.com forecasts a 3.7% increase.
Mortgage rates are also expected to remain elevated, hovering above 6% throughout the year. Inventory may also stay relatively tight in some areas, which also contributes to soaring home prices.
