1 week ago
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According to an analysis by Reventure Consulting CEO Nick Gerli, the U.S. housing market continues to show signs of problems even as mortgage rates edge lower.
Despite recent rate declines, homebuyer demand remains depressed, with mortgage applications down 57% from their pandemic peak and 43% below pre-pandemic levels.
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The persistent weakness in buyer activity has caught many real estate professionals off guard. Industry expectations of a quick rebound in response to falling rates have not materialized, reflecting deeper issues in the market beyond just financing costs.
Gerli stated that three key factors behind the sluggish demand are affordability constraints, buyer exhaustion following the pandemic boom, and record-high pessimism about the housing market. Recent data from the University of Michigan shows that 87% of consumers believe it's a bad time to buy a home—surpassing even the early 1980s, when mortgage rates hit 18%.
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Perhaps most concerning is the current home value-to-income ratio, which Gerli said stands at about 4.6, much higher than historical norms. This level has only been approached twice before: during the 2006 housing bubble (4.4) and the post-World War II boom (nearly 5.0).
Major corrections in housing affordability followed both periods.
“The U.S. has never sustained a housing market that is this expensive relative to people’s incomes,” Gerli said on X, formerly Twitter. “The market is out of whack and buyers know it.”
Historical precedent suggests two primary paths to restoring balance: falling home prices or rising incomes. Following the 2006 bubble, prices crashed, bringing the ratio down to 3.2. In contrast, the post-war era saw gradual improvement through robust income growth, with housing becoming twice as affordable between 1953 and 1973.
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Looking ahead, Gerli anticipates a potential combination of both factors. Some markets—particularly in the Sun Belt, where inventory has spiked—may see quicker price corrections. Austin, Texas has already demonstrated how rapidly values can adjust under the right conditions. Other regions, especially in the Northeast and Midwest where supply remains tight, might experience a more prolonged period of stagnation.
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