Amid the fight against inflation and reorienting the economy, mortgage rates have been their highest since the 2008 Financial Crisis. Reported to be over 6% last week for 30 year mortgages, the current mortgage trends are raising some concerns in the housing market as they approach rates seen in 2008.
The Federal Reserve is desperate to subdue inflation and continues to aggressively raise interest rates as it sees fit, cutting down consumer demand which will (hopefully) gain price stability. Federal Reserve Chairman Jerome Powell expressed the Fed’s current focus stating “it is very much our view, and my view, that we need to act now forthrightly, strongly, as we have been doing, and we need to keep at it until the job is done.”
Mortgage rates have been the most responsive to the Fed’s involvement in the economy. As the Fed makes it more expensive to borrow, the cost of home ownership continues to rise forcing many potential buyers out of the market and leading new homeowners to cut costs to fulfill their payments.
Though the current trends are scary, there probably will not be a housing crisis like in 2008. With better underwriting standards and market regulations that prevent high risk loans that were allowed during the 2000s, it is much harder to imagine an outcome similar to those in the past.
It is substantially cheaper to rent over buying a home. With the costs of rent incurred from rent being lower than mortgage payments, it has for an extended time been much more viable to seek renting over buying a home. With each new cohort of younger individuals looking for housing, people are much more inclined to seek renting as home ownership becomes increasingly inaccessible to younger generations entering the housing market.
The average age of a homeowner is 56, and homeowners over 55 own over half the total share of housing. Furthermore, many are planning to not move in the future. In a 2017 survey, 85% of the 55+ age group did not plan to sell their home within the year as they feel that their home serves their current needs. Over the last 30 years the “aging in place” group of homeowners has increased by unprecedented rates.
Older generations are staying in their homes longer. The housing market is not prepared for the longevity of humans in the present day. The Baby Boomer generation is expected to live considerably longer than previous generations, implicitly creating a housing shortage effect, among other problems.
These older generations do not have good options to downsize to. Less mobile and active, more suitable and more affordable housing often is not an option for them, leading them to stay put in homes too big for their needs without any good alternative. Home builders are focused on building housing for active adults, rather than adults looking to downsize and whose preferences usually do not align with the current supply of housing. And on top of this they still must face high costs as well if they do plan to move.
Expanding housing supply should not be the goal. Though demand forces dictate homes being built, this is only a provisional amendment to the housing problems we face. Older generations are put in a situation where they cannot buy another home or often refuse to sell their home. This effect creates an uncomfortable market to navigate and exposes the need to focus on older homeowners’ roles within the market, providing them with better options for retirement.
Homebuying has been a traditional store of value and a long term investment that many Americans strived to fulfill. However, this part of the American dream is fading into the past. Though many individuals of older generations promote settling somewhere and growing a family, this ideal is being eclipsed by other responsibilities younger generations must face. Owning a home is a goal being constantly pushed further into the future and is no longer realistic as it has been for those in the past. The fact is the current economic conditions are driving away from a traditional lifestyle, and housing will continue to become a greater issue in the foreseeable future.