There is a simple reason why the US housing market is headed for its “broadest slowdown in years“: prices for housing are just too high, a new report suggests. Which is odd considering the conventionally accepted narrative that “rising prices are better for everybody.”
According to a new report from the National Association of Realtors, prices for starter homes are the highest they have been since 2008, just prior to the collapse of the housing market, and when Ben Bernanke infamously said that there is no housing bubble and that “we’ve never had a decline in house prices on a nationwide basis” and therefore we’ll never have one. The housing market suffered its worst crash on record shortly after.
In the second quarter, first time buyers needed 23% of their income in order to afford a typical entry-level home; this was up from 21% in the year prior, and the highest in the past decade.
This, of course, should surprise nobody as price gains in the housing market have long outpaced wages; in fact in most markets the average home price increase is double the growth in hourly earnings.
Now, with the housing market starting to show signs of cooling off, those bearing the brunt of the increases are buyers at the low-end of the market and in areas where supplies are the tightest. This has probably not been helped along by the volatile cost of commodities like lumber which have been impacted by Canadian tariffs, among others.
On top of that, rising interest rates are making mortgage prohibitively expensive for a broad section of the population.
“When prices go up at the entry level, that’s where the affordability issue is most acute,” Wells Fargo economist Charles Dougherty told Bloomberg. “People are hesitant to stretch the amount they’re willing to pay.”
The most expensive markets in the United States were San Francisco and New York City, where Bloomberg reported that the median household needed 65% of its income to buy a house in the second quarter of this year. Similar statistics followed in Los Angeles and Miami, where those numbers were 59% and 55%, respectively.
Perhaps a better way of saying this is that no mere mortal can actually afford to buy there, and the only buyers are members of the 0.01% or those who have an extremely generous mortgage lender.
None of this housing information is discussed at length by the FOMC or the government, which find no problem with a near record number of people getting priced out of the market. Nobody will be surprised when, as prices continue to rise, we are “surprised” by the next housing crisis.
This news comes just days after we reported layoffs taking place at Wells Fargo as a result of the slumping housing market and slower mortgage applications, as a result of collapsing mortgage loan demand. Last Friday, Wells Fargo announced it was cutting 638 mortgage employees as the nation’s largest home lender is hit by a crippling slowdown in the business.
“After carefully evaluating market conditions and consumer needs, we are reducing to better align with current volumes,” Wells Fargo spokesman Tom Goyda said in an emailed statement according to Bloomberg.
As we reported back in March that the “Bank Sector Is In Peril As Refi Activity Crashes Amid Rising Rates” and as interest rates have continued to rise, Wells Fargo has been contending with the end of a refinancing boom that helped push profits to a record.
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