The housing market is 'pretty dire' for younger Americans, says Realtor.com's Danielle Hale

Young homebuyers are extremely negative on the availability of housing in the country at this point, with 68% calling it non affordable and only 6% of young Americans saying that housing was both available and affordable according to CNBC’s latest Generation Lab poll. Joining us right now is Danielle Hale, realtor.com’s Chief Economist. And Danielle, I have to say it’s not surprising to hear this from this group of them because the numbers are pretty horrific. I couldn’t believe how much money you need to make in the top ten markets to be able to find housing. And it’s not unique to just those top ten markets. What’s happening? Yeah, so this isn’t a new phenomenon. We’ve been talking about the under supply of housing for the better part of the last decade. We can see that relative to pre pandemic levels, housing is down 36% when we look at the for sale market. So there are 36% fewer homes for sale and home prices have gone up by about a similar margin, 36%. Combined with higher mortgage rates that buyers are facing right now, those higher prices mean you need to earn over $100,000 and 34 out of the 50 largest metro markets to buy the typical home for sale. So we’re not talking luxury properties, we’re talking just the median home that’s available for sale today. If you look at the top of the list in terms of most expensive, most of them in, in California, San Jose you’ve got to make $361,000. LA, it’s almost $300,000, San Diego almost $260,000 and then San Francisco, I mean that that is pricing out entire generation and entire generation from this housing market. Yeah, I think that’s true. We don’t see very many first time buyers in these markets because they are well established markets where prices are very high. If you look at the calculation of what it costs to buy, it takes the you know over a quarter $1,000,000 to buy a home versus what it costs to rent. It’s expensive but not as expensive as it is to buy. And so many are making that decision in these large markets to rent. That’s why we see home ownership rates in these large markets trail behind the typical U.S. housing market. So it is challenging in these markets, but even though it is a very challenging market, there are some areas where we do see opportunities, in particular in the Midwest and in the South where home prices remain relatively more affordable. And although it is a dire situation, if you compare to four years ago where we’re looking at much fewer homes on the market compared to last year, we are seeing an increase and a significant one. The home price homes on the market for sale are up over 30% compared to a year ago. And if we look at the below median price point of 200 to $350,000, homes in that price category are up by 40%. So we are starting to see a bit of a turn around, a bit of improvement, but from what is still a pretty dire situation for young people. But you think that’s where the log jam is starting to break at the entry level housing and that’s maybe because those people who live in those homes have finally outgrown them and they can’t put off kind of either moving up or moving out potentially. So we don’t have a lot of detail on who is listing those 200 to $350,000 homes. So we are seeing more of them, particularly in the South. So that is starting to turn things around and give shoppers on the market more opportunity. That said, as long as mortgage rates remain high, it is still going to be challenging for young people to navigate even those somewhat more affordable options. And I should also note on a price per square foot basis, we’re not necessarily seeing prices come down, but we’re seeing a bit of a shift in what’s for sale. So that is good news for someone looking for an entry level home. They are seeing more availability in those more affordable price tiers, but it’s still relatively expensive. Fortunately, you know, we’ve talked a lot about the price of housing going up. We have also seen incomes go up. So that has been one bright spot. And in fact over the last couple months we’ve seen incomes catch up and grow faster than the cost of buying a home. A lot depends on what happens with mortgage rates here, because it does mediate the buying power of households. But as incomes catch up, home prices can essentially move sideways and give incomes an opportunity to catch up and improve the affordability picture. But it’s really going to be a two fold approach. We’re going to need to see more construction in order to really make a break. Danielle, what if interest rates actually went up from here? That’s that’s not the expectation, at least for conventional wisdom. But if interest rates went up, what do you think the impact would be? I think if interest rates go up, it’s going to be harder to buy a home. It’s it’s interesting to note that you know that affects sellers as much as it does buyers. And so we see we tend to see inventory pull back when interest rates move higher, which can make it even more challenging for those first time buyers. First time buyers are actually still generally willing to engage with the market when interest rates go up because they’re usually at a stage in their life where they’re ready to make that decision of becoming a homeowner and they’re not necessarily locked into a low existing mortgage rate. So they’re more willing to engage with the market, but it does become more challenging from a pure numbers perspective and looking at qualification ratios, it’s harder for them to get into the market when mortgage rates go up. So I will say that is not my expectation. I do think we’re going to see inflation eventually relent and mortgage rates come down.