Why Is House Hunting Getting Harder In the US?

As of late June 2023, the number of homes for sale has significantly decreased over the past 59 weeks. The prices of new home listings are down nearly 29% from the last week of June 2022. Last year, home prices were 45% above those of the pre-pandemic days.

A mortgage is an agreement between an individual and the lender, where the lender has the right to take your property if you are unable to pay back the loan with interest. Currently, mortgage rates are up 7%. By comparison, most homeowners have mortgage rates below 4% (some even 3%). When mortgage rates are high, then the demand for homes decreases, and as a result, the prices of homes also go down. Pending sales, which are a measure of signed contracts on existing homes, were down 3% in May from April. Single-space housing has increased but is still below historical levels. However, for home builders, it is a different story. Most home builders in the US can set their own mortgage rates, and buy homes at down rates. Those individuals are thriving. 

As per economists, there are few transactions taking place in the housing market in the US, and it is currently experiencing stagflation (the combination of high inflation and poor economic growth). Although the pandemic has worsened this, the housing market has been performing poorly since the Great Recession in 2008 (which was caused by excessive mortgage lending). In July 2010, the US passed the Dodd-Frank Act, which prohibited lenders from engaging in excessive mortgage lending, that could potentially lead to a financial crisis. After the Great Recession, the demand and quantity of homes built decreased significantly.  Since the inflation rate is slightly on the higher side (~5.25%), the Federal Funds Rate (the rate at which banks charge other banks for loans) has also gone up to ~5.3%, hence mortgage rates are high right now. Once inflation is under control (ideally 2%), everything else (including mortgage rates) will also decrease.