America’s Housing Crisis: From Bad To Worse

At the beginning of last month, we checked in with the Caluclated Risk Housing Blog, one of The Juice’s more than 100 financial media partners, for an update on housing prices. 

In Housing: It’s A Bad News, Bad News Situation, we painted a not-so-pretty picture: 

Price drops in the usual suspect hot markets mean very little. Plus, not all of the hot markets are in decline. And the ones that are will likely come back sooner rather than later. It’s these price increases in places that have been bastions for affordability that are concerning.

… If you’re looking to buy in one of these affordable markets, you must be getting antsy … Even with interest rates still relatively high, we’re seeing these markets surge. What happens when the Fed actually cuts rates and the cost to secure a mortgage decreases? 

We think all hell is about to break loose. 

… We’re in a real pickle on housing. And for the people who are not locked into a low rate or don’t own their homes free and clear, this is a big problem now and going forward. 

Sadly, the latest data only continues the worrisome trend, which we might need to start calling the new abnormal. We cover housing a lot at The Juice because, in and of itself, it’s a big deal, but also because it can make or break retirement for quite a few people. And retirement is one of our main themes in 2024. 

So let’s update the numbers, via Calculated Risk, and throw in some thoughts along the way. 

First, with the numbers Freddie Mac:

Freddie Mac reported that its “National” Home Price Index (FMHPI) increased 0.2% month-over-month on a seasonally adjusted basis in January. On a year-over-year basis, the National FMHPI was up 6.2% in January, from up 6.3% YoY in December. The YoY increase peaked at 19.1% in July 2021, and for this cycle, bottomed at up 0.9% YoY in April 2023.

Then, Case-Shiller:

On a seasonally adjusted basis, prices increased in 13 of the 20 Case-Shiller cities on a month-to-month basis. Seasonally adjusted, San Francisco has fallen 8.7% from the recent peak, Seattle is down 7.0% from the peak, Portland down 4.7%, and Phoenix is down 3.2%.

It’s worth repeating. Declines in ultra-expensive and what used to be the hottest of hot real estate markets don’t mean much, particularly in relation to the affordability crisis. If you couldn’t afford the payment on a, say, $1.5 million house in San Francisco, Seattle, Portland or Phoenix, are you suddenly well-positioned to comfortably qualify for and take on the obligation at between 8.7% and 3.2% less? For most mere mortals, the answer is no due to persistently pesky obstacles such as a prohibitive down payment to a monthly payment you can’t possibly afford. 

Then, there’s this:

U.S. house prices rose 6.5 percent between the fourth quarter of 2022 and the fourth quarter of 2023, according to the Federal Housing Finance Agency (FHFA) House Price Index … House prices were up 1.5 percent compared to the third quarter of 2023. FHFA’s seasonally adjusted monthly index for December was up 0.1 percent from November …

The increase this year is larger in the Pacific, Mountain, East North Central, New England and Middle Atlantic regions.

Which ties into this additional insight from the Case-Shiller report:

“U.S. home prices faced significant headwinds in the fourth quarter of 2023,” says Brian D. Luke, Head of Commodities, Real & Digital Assets at S&P Dow Jones Indices. “However, on a seasonally adjusted basis, the S&P Case-Shiller Home Price Indices continued its streak of seven consecutive record highs in 2023. Ten of 20 markets beat prior records, with San Diego registering an 8.9% gain and Las Vegas the fastest rising market in December, after accounting for seasonal impacts.”

“2023 U.S. housing gains haven’t followed such a synchronous pattern since the COVID housing boom. The term ‘a rising tide lifts all boats’ seems appropriate given broad-based performance in the U.S. housing sector. All 20 markets reported yearly gains for the first time this year, with four markets rising over 8%. Portland eked out a positive annual gain after 11 months of declines. Regionally, the Midwest and Northeast both experienced the greatest annual appreciation with 6.7%.”

So, when you look year over year, not month to month or from the peak, you see that prices are up across the board. And, in some cases, up handsomely. Parts of the country that were once reasonably affordable are becoming less so. 

We don’t need to cite another survey that says many people in younger generations think they’ll be lifelong renters. To some degree, this isn’t a problem. You can become wealthy as a renter. In fact, without the financial burden of home ownership, you could argue it might be easier to build wealth and end up with $1 million-plus come retirement. 

That said, if you’re never able to buy a home and pay off a mortgage, you’ll likely be left with a housing payment in retirement. And, depending on where you want to live, that payment as a renter or as the result of becoming a homeowner in middle-to-old age could be thousands of dollars. That’s a hefty budget line item to have to satisfy month after month as you draw down your retirement nest egg. 

The Bottom Line: It might be the biggest money condundrum we face in the United States (and Canada). The housing crisis meets and, in some cases, directly influences, if not causes the retirement crisis. Other than moving to an ultra-low cost part of the country — or another country entirely — how do you address this issue? 

The Juice has some thoughts, like the passing down of generational wealth, which might include property. But is this really a solution, given that it’s only accessible to a privileged few? 

Use the feedback link at the bottom of this email or webpage to tell use how you’re dealing with housing in America, particularly if you fit the profile of somebody struggling to afford it or if you think you’ll take a payment into your retirement years.

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