In late October 2023, existing home sales plummeted to their lowest level since 2010, when the world economy, and particularly the U.S. housing market, was struggling to emerge from the Great Financial Crisis. This signaled a frozen housing market, where fewer homes changed hands due to skyrocketing home prices and mortgage rates peaking at 8%.
Rising mortgage rates have made the housing market “depressed” and “more unaffordable,” Gary Shilling, an economist best known for correctly predicting the 2008 housing crash, said in a recent article. Retirement lifestyle advocates podcasts. Not only could new homeowners not afford to enter the housing market, but fewer existing homeowners wanted to give up the 3% mortgage rates they had, a phenomenon known as the lock-in effect.
“They don’t want to sell their homes and move to another home because they would have to take out a mortgage at more than double the yield on their current mortgage,” Shilling said. “There’s this really strange situation of high mortgage rates, but a shortage of housing inventory. It’s an anomaly.”
Before the 2008 crash, Shilling – considered a real estate prophet – warned that subprime lending was probably the “biggest financial problem” facing the U.S. economy, and in January 2006 he wrote an article titled “The Real Estate Bubble Will Likely Burst.” . He is currently president of financial advisory firm A. Gary Shilling & Co. Inc. and editor of Insight by A. Gary Shilling, a monthly newsletter that promises “exhaustive investigations into key economic indicators” and how they affect investment portfolios.
While mortgage rates have fallen slightly from their peak in October 2023, they are still hovering around 7% and there is no telling when they will drop by a significant amount. Other real estate experts and economists have predicted that mortgage rates will remain between 5% and 6% for the next two years, but a significant change won’t “happen overnight,” Shilling said.
“I think over the next three to four years we’re probably going to see a noticeable pickup in real estate activity,” Shilling said. “It will take time.”
What other real estate experts are saying about the frozen real estate market
Ultimately, the real estate market is all about a game of supply and demand. With so few homes on the market, competition increases, driving home prices higher.
“Lack of supply is the biggest factor pushing prices higher and higher,” says Marc Norman, associate dean of New York University’s Schack Institute of Real Estate Fortune. “We really need interest rates to come down along with construction prices as well as additional land available through densification or zoning changes. We are starting to see all of these things happen, but it will take time for this to create the new supply needed.”
Even so, the housing market recovery will be more “geographically specific,” Norman predicts.
“Markets won’t really recover in terms of increasing supply until interest rates come down and jurisdictions change zoning, codes or incentives to speed up construction or reduce costs,” Norman says. “We’re starting to see these changes have an impact in places like California: building remedies, ADUs and eliminating single-family zoning,” he says, as well as other affordability programs in Florida.
But “other places like New York will struggle as legislation will be stymied by suburban politicians.” This is a nod to a famous phrase in real estate circles, “not in my backyard” in which homeowners block development in their neighborhoods.
“NIMBYism is real, and the failure to gain community buy-in adds time, cost and uncertainty,” said Tom Barkin, president of the Federal Reserve Bank of Richmond, in a speech in mid-November 2023. “How do leaders do mobilize their communities? They expose the issue of housing.”
Gerard Splendore, a broker at Coldwell Banker Warburg, says the housing market is not “frozen, but perhaps slow in reaction to concerns about the economy,” arguing that higher mortgage rates and home prices may be something we need to get used to. TO.
“As the economy remains in a holding pattern, in anticipation of falling interest rates, presidential elections and war [and other] conflicts, the more it becomes the “new normal””, says Splendore Fortune. “Buyers and sellers of real estate accept what is happening around them and move forward – or not – with their own needs.”
Other real estate experts also say there’s more to the frozen real estate market than meets the eye. The main problem facing the housing market today is low inventory levels and three years of pent-up demand, says Dan Green, CEO of Homebuyer.com. Fortune.
“The biggest problem with the housing market is that there aren’t enough homes,” Green says. “The market is not frozen. The shelves are bare. There is a huge imbalance between buyers and sellers.”