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Home prices are rising at an historic rate, putting the dream of owning a home out of reach for millions of Americans.
According to the latest S&P CoreLogic Case-Shiller National Home Price Index, home prices have increased at the fastest rate in 15 years. The index rose 11.2% in January, the highest annual gain since February 2006. Price growth is fueled by a record number of homes available for sale on the market.
“It’s a real crisis,” Moody’s Analytics chief economist Mark Zandi told Yahoo Finance. “We have a very serious housing shortage, especially affordable housing.”
The median price of an existing home sold in February was $ 313,000, up 15.8% from the same month a year ago, according to the National Association of Realtors. This is the highest price on record in February.
The bidding wars pushed up prices. And historically low interest rates last year have also boosted home buying activity, further depleting supply.
“If you are looking for a house, it becomes more and more difficult,” Zandi said.
Rising mortgage rates this year have reduced the purchasing power of buyers. Six weeks of increases took the average 30-year fixed mortgage rate to a nine-month high of 3.17%, according to Freddie Mac.
“Mortgage rates are off their historic lows, but still historically low,” Zandi said. “As interest rates normalize, mortgage rates start to go up, this is going to become more and more of a problem.”
Bubble possible
The housing shortage is a problem that began to develop in the wake of the housing crisis and the subsequent financial crisis of 2008-2009, according to Zandi. “This is a pernicious problem, and it will take a political response to fix it.”
He said the “significant” restrictions imposed by state and local governments on land use must be relaxed to allow for more construction, and Zandi suggests using the impending $ 3 trillion infrastructure plan. President Biden as an incentive.
“If you want to get this money – state and local governments – you have to change your land use practices to allow for more affordable construction in your community,” Zandi said.
The housing market is currently overvalued, according to Zandi, and while he doesn’t yet believe we’re in a housing bubble, he admits things “feel terribly tense.”
“In another year, if we see prices go up 10%, 15%, I think we’ll start to see markets infected with speculation and bubbles start to grow,” he said.
Alexis Christoforous is an anchor at Yahoo Finance. Follow her on Twitter @AlexisTVNews.
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