The International Monetary Fund’s (IMF) latest analysis reveals a significant rise in global housing costs, surpassing pre-2008 crisis levels across 40 countries, including the United States.
The International Monetary Fund has highlighted a concerning trend in the global housing market. Their recent data shows that housing affordability has reached its lowest point in decades, worse than the levels experienced before the 2008 financial crisis. This downturn is attributed to escalating mortgage rates and rising home prices.
The IMF’s analysis, based on an index that considers mortgage rates, home prices, and household income, shows a declining trend in affordability across the globe. The index indicates that for a typical household, the income necessary to secure a mortgage for an average-priced home has significantly increased. The median affordability index has dropped below a critical threshold of 100, meaning households now have less income than needed to qualify for a typical mortgage.
Economist Deniz Igan, involved in the IMF’s report, notes the role of higher mortgage rates and escalating home prices. In the U.S., a notable rise in mortgage rates has been observed, closely tied to the Federal Reserve’s efforts to curb inflation through increased interest rates. Currently, the 30-year fixed mortgage rate stands at about 6.69%, a significant rise from the sub-3% rates seen during the pandemic, based on Freddie Mac’s data.
Despite the climbing mortgage rates, housing prices in the U.S. have continued to surge. Census data reveals the median sale price for a single-family home reached $420,000 in the third quarter, marking a 28% increase since the first quarter of 2020. The combination of high borrowing costs and strong demand due to robust household formation and limited housing supply has kept prices elevated, according to Igan’s article in the IMF’s ‘Finance & Development Magazine’.
Looking forward, experts do not anticipate significant relief in affordability in the near term. Although home price increases are expected to slow somewhat, and mortgage rates might ease slightly, the changes are expected to be minimal. For instance, forecasts from Zillow suggest home prices could grow by 2.6% in 2025, and while mortgage rates may show variability, they are likely to remain high. Similarly, Redfin predicts a 4% increase in home prices next year, with mortgage rates hovering around 7%.
With entrenched issues in the housing sector, affordability challenges persist worldwide. Though potential slight adjustments in prices and rates might offer limited respite, the global housing market demands attention to underlying structural issues continuing to drive up costs.
Source: Businessinsider
