The US real estate market is broken, proven by a monthly tsunami of published data. Home deals are collapsing. Housing affordability is eviscerating the American Dream, and renters outnumber homeowners in many cities. Despite being a sizable country with plenty of land, the situation in the housing sector is spiraling out of control for millions of families, leaving behind an entire generation confined to overpriced shoeboxes.
Home Deals Fall Apart
In July, a record 60,000 individuals terminated their home deals, citing high prices and concerns surrounding the presidential election as reasons for ripping up their agreements, according to a new report from the real estate brokerage firm Redfin. The cancellation of home-purchase agreements was equal to nearly one-fifth of residential properties that went under contract, the highest percentage for the month on record.
The chief factors were sky-high home prices, elevated mortgage costs, economic fears, and even the November election. "Many house hunters are getting cold feet because housing costs remain high. Economic uncertainty is also high, with recession fears on the rise," Redfin stated.
Pending sales tumbled 3% month-over-month and 6% year-over-year — both were the largest declines in about a year. Existing home sales fell 2% compared to the same time a year ago, the lowest reading since the organization launched this data tracker in 2012. On a monthly basis, they were up 0.6% from June to July.
Indeed, new data showed that conditions are not improving. The S&P CoreLogic Case-Shiller National Home Price Index climbed to an all-time high in June and marked the fifth consecutive monthly increase. On an annualized basis, national home prices advanced 5.4%, slightly down from the 5.9% boost in May.
“The S&P CoreLogic Case-Shiller Indices continue to show above-trend real price performance when accounting for inflation,” said Brian Luke, the head of commodities, real and digital assets, at S&P Dow Jones Indices, in a statement. “Home prices and inflation continue to factor into the political agenda coming into the election season. While both housing and inflation have slowed, the gap between the two is larger than historical norms, with our National Index averaging 2.8% more than the Consumer Price Index."
To put the current condition of the US real estate market into context, Luke estimated that, before accounting for inflation, home prices have soared more than 1,100% since 1974. Still, even after calculating inflation over the last 50 years, home prices have doubled (111%).
With the Federal Reserve expected to cut interest rates in September, long-dated US Treasury yields have slumped, leading to a steady drop in mortgage rates. The 30-year fixed mortgage rate is now averaging around 6.5%, down from the 2024 peak of 7.3% in April. This is still the highest level since the Global Financial Crisis.
Even if a household possesses the means to buy a home, the down payment required to purchase a single-family house, townhome, or condominium is enormous. In a separate Aug. 28 report, Redfin found that the typical homebuyer's down payment rose 15% from a year ago in June to a record $67,500. This accounted for the 12th straight monthly median down payment year-over-year increase.
A Rental Crisis
Shelter costs have been sticky and stubborn in today's inflationary climate. Public policymakers and economists have insisted for the last 18 months that rents would come down by now, but this has not been the case. Annual rental price growth is still above pre-pandemic averages, ballooning more than 30% since before the COVID-19 public health crisis.
In July, Zillow reported that asking rents jumped by 5.1% year-over-year. Additionally, according to other data put together by Redfin, the national median asking rent was $1,647 in July, down just $53 from the all-time high in 2022.
While renters could find a deal, the urgency is real, says Sheharyar Bokhari, the senior economist at Redfin. "Rents have recently steadied — or even dropped slightly — because of the sheer number of apartments built over the past two years,” said Bokhari. “Construction is slowing down, and prices will eventually start rising again, but now is still a good time for renters to find a deal, especially families looking for an apartment with at least three bedrooms.”
The chief challenge in the coming years will be supply satisfying demand. The number of renters has soared to a record 45.2 million, growing three times faster than the number of homeowners. According to new data from IPX1031, many cities have experienced renters outnumbering homeowners. Hartford, CT, for instance, has the most renters in the country, with 77% of people living in a rental.
Uh, Any Help?
The current administration has attempted to tackle the issue through various public policy instruments, including subsidies, tax credits, and mortgage assistance. Vice President Kamala Harris has proposed rent controls. Some left-leaning states have chosen to help illegal immigrants with sizable down payments to purchase a home. Donald Trump has repeatedly slammed his Democratic opponent over record home prices. It is unclear what the former president plans to do, though the Republican nominee has concentrated his economic policy platform on reducing inflation and interest rates.
Unless there is a new housing construction blitz in every state, economists overwhelmingly agree there is unlikely to be a crash in real estate prices. Will more home deals collapse in the coming months? If so, who can blame families trying to navigate the noise and turbulence?
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