Housing Market Reckoning Won't Provide Salvation for Would-Be Homebuyers

A new year has begun for the United States housing market, which experts believe will bring a much-needed correction to the imbalance between soaring house prices, surging mortgage rates and a low supply of affordable first-time buyer properties that has forced many to suspend their dream of getting a foot on the housing ladder.

Record high house prices tied to a chronic shortage of stock within the market has side-lined countless Americans unable or unwilling to take on eye-watering monthly mortgage repayments.

House prices skyrocketed in the first half of last year, frustrating many seeking the traditional safety and security of home ownership. When mortgage rates surged in the second half of 2022, reaching their highest level since 2008, experts said the market had reached a tipping point and house prices began to fall.

Though they say this trend will continue in 2023, it doesn't necessarily mean clear skies for first-time buyers.

"The current state of the housing market is that it is certainly in transition," said Cristian deRitis, the deputy chief economist at Moody's Analytics.

"We have house prices that are falling, sales that are declining rapidly below pre-pandemic levels. Construction is also hampered by higher interest rates; we have falling levels of permits and starts," he told Newsweek. "The one saving grace is that there is a large pipeline of houses that were started but not completed because of all the supply chain issues. So, construction activity is continuing right there.

"We're actually hiring construction workers, so we are still building single-family and especially multifamily properties. There's a very large pipeline of those still underway."

Things are slowing down in the housing market, deRitis said, to the point at which Moody's Analytics predicts house prices will fall by about 5 and 10 percent this year.

The deceleration would be definitely noticeable in the regional markets where prices are expected to fall by double digits, but some areas—the ones that didn't experience a run-up in prices over the last couple of years—"may not experience any decline at all."

But is the American dream of homeownership still viable?

While experts say that the incoming future holds reasons to be positive, things still look dire for many tenants and aspiring homebuyers who remain stuck between increased rent and unaffordable home prices.

"It's devastating, especially coming off the pandemic, when people were already struggling," John Pollock, coordinator at the National Coalition for a Civil Right to Counsel (NCCRC) told Newsweek.

"Although the country did a lot—or tried to—to get relief to people during the pandemic with rental assistance and the expansion of the right to counsel, you still had many people who didn't get assistance in time," he said.

"These people then not only faced the potential loss of their units because they owed rent for where they were, but then they were looking at a market that they couldn't re-enter because there were no affordable units."

Pollock described the current situation many struggling low-to middle-income tenants are stuck with as "the worst of both worlds."

"To come out of a pandemic like that where so many people were income-deprived and vulnerable and then have rents go up at the same time, it's a devastating combination," he said.

This situation turned into "a recipe for homelessness" in these places where thousands of people were waiting for rental assistance during the pandemic and didn't get it on time to avoid eviction, Pollock said.

Rental markets became "hyperinflated" all over the country in the past year. Many tenants across the U.S. were evicted in areas that were experiencing gentrification, as landlords often sought "opportunities to increase rent" at the cost of forcing the current tenants out, Pollock said.

The right to counsel can prevent tenants from being evicted, but this is not implemented everywhere in the U.S. Nor are evictions the only way landlords can get rid of an unwanted tenant.

This is the case for William Hohmann, a 75-year-old retiree who for the past two years has lived in the senior living community of Connect55+, in the small town of Meadville, Pennsylvania. Now, after the owners increased rents by 30 to 40 percent, he's facing the prospect of being forced to leave.

"We have brought up so many requests for Welltower and Calamar corporation (the owner and the manager of the property, respectively) to meet us and negotiate this exorbitant rent increase," Hohmann told Newsweek. "They sent down their lawyers, and they told us they're not planning on renewing our leases."

Newsweek reached out to Welltower and Calamar corporation for comment.

"This could happen to anybody, not just the people who are living in this facility," said Hohmann. "It could happen to anybody in the community because the community is not that affluent."

Experts agree that the market isn't kind to tenants and first-time homebuyers at present.

"If we're just talking about now, it is tough for a first-time homebuyer, I don't want to sugar-coat this," deRitis said. "The choices out there for single people interested in single-family homes, it's just kind of non-existent in many markets. Homeownership is elusive for folks, but the outlook looks brighter.

"We expect the labor market to remain robust, wages to continue to rise—maybe not at the pace that they did during the pandemic, but that will open up some opportunity for folks to enter homeownership as interest rates stabilize a bit."

Something that could help unblock and improve the current situation is an increase in inventory, Moody's Analytics' Thomas LaSalvia told Newsweek.

"If the inventory is low and if no one's willing to get out there in the market, that does ultimately affect just the full housing ecosystem," LaSalvia said. "There's certainly been a recognition by our legislative leaders and the public at large and different organizations that we do need to boost housing supply in this country.

"Certainly, the private market is there and it's going to continue to work at achieving that. But that recognition and the emphasis on that may also help moving forward.

"There will be additional units added to the economy and that will open up new opportunities for folks either to rent as a first step or eventually to buy. If the market bounces out, finds its new equilibrium, there will be buyers out there that we'll be able to attain that American dream moving forward."