Residential

Real Estate

Buyers on Strike?

Prices are still way too high. So the Buyers’ Strike continues.

By Wolf Richter for WOLF STREET.

Despite mortgage rates dropping to 6.09%, from 7.9% 10 months ago, sales of existing single-family houses, condos, and co-ops dropped further to a seasonally adjusted annual rate of 3.86 million in August, according the National Association of Realtors today.

DYI:  Sky high residential real estate prices along with multiple economic indicators pointing to an economic slowdown or very possible outright recession more and more buyers are sitting on the sidelines. 

Loss of job fears, too high mortgage rates and nose bleed high prices potential buyers are either balking at the twin dynamics of high mortgage rates and excessively high prices plus those who fear job loss regardless of prices or interest rates will not commit to purchase.  Those who are already unemployed are obviously a non potential buyer adds plus discussed above residential real estate is being demand destructed.

As of 2023, the median household income in the United States is $80,610, which is a 4% increase from 2022. This is the first significant increase in real median household income since 2019. 

Median U.S. residential house price is $420,000 or 5.21 times gross income.  Of course an enlighten household will be maxing out their 401k at 15% thus their new gross income is $68,518 re-computing the R.E. to gross income ratio of 6.13! 

WAIT!  Not done yet; our potential home buyer knows savings is needed especially when you own a house – [plus all of the other potential folly’s life throws at you!] – is for maintenance saving rate of 5% of gross income.

Back to arithmetic this reduces their gross income to $65,092!

So…We are seeing house price to gross income at 6.45 to 1!  No mystery why we are seeing a buyers strike for home purchases and for good reason!

Anyone purchasing a house at this extreme (6.45 to 1) their entire life will be centered on the house all of the time.  Over time – [at least 10 years] – inflation will lesson the blow as their income moves up however it will take 20 years before the payment is in the bargain category.  Despite the best of intentions in this scenario is within a few short years the savings will stop out comes the credit cards and soon taking money out of the 401k to catch up with all of the bills and debt in a non stop vicious circle.

If you want a life; never purchase a house more than 2 times gross income.  For the vast majority this means saving for a down payment bringing the mortgage payment more in line with present income.  Once sub atomic low interest rates became the norm since the early 2000’s folks attempting to out save the sky rocketing price increases were in a never ending battle!  

So no doubt I get the dilemma!

Till Next Time