Low mortgage rates and thriving employment should be the recipe for a strong housing market. Instead, they're deepening America's affordability crisis.
What began on the coasts, in areas like New York and San Francisco, is now radiating into the nation's heartland, as well as to cities from Las Vegas to Charleston, South Carolina. Entry-level buyers are scrambling to purchase homes that are in short supply, sending values soaring.
The Federal Reserve interest rate cut last week will do little to change the sober reality: For many, prices have risen much faster than incomes, pushing homeownership out of reach for a new generation of hopeful buyers. That's cooling the market, with the 2019 spring season shaping up as the slowest for sales in five years, according to CoreLogic.
"All signs point to a housing market that should be doing really well, and it's not," said Danielle Hale, chief economist for Realtor.com. "The No. 1 constraint, despite low mortgage rates, is that people can't find housing that they feel is affordable."
Many buyers in expensive West Coast cities have already retreated after a surge in prices squeezed them out. But in other areas, demand is still robust, fueled by a strong economy and this year's rapid decline in borrowing costs. There's too little to buy, and too much competition.
Dean Rusch, a 29-year-old chemical-plant worker, has been trying to buy a starter home for less than $200,000 in Louisville, Kentucky, since April. On three occasions, houses he planned to tour were snapped up before he could get there. He was outbid on another. He finally had an above-asking offer accepted Sunday on a house listed for about $199,000, but only after his agent locked the door during a showing, keeping another buyer out. For much of his hunt, it was slim pickings.
"I've looked at some crappy ones," Rusch said. "I used to be in the fire department, and smelled some crazy stuff. But one smelled so horrible that it gave me a headache."
Recent months have shown a growing divergence between the high and low ends of the U.S. market. Prices in the bottom third jumped about 9% in June from a year earlier, compared with 1.1% growth for the top third, data from Redfin shows. Meanwhile, sales for lower-priced homes plunged almost 20% as buyers struggled to find properties in their range, according to Zillow.
"We have a lot more buyers preapproved for mortgages than people closing on homes," said Jeff Davis, Rusch's agent. "What that means is the struggle is not in the financing. The struggle is in the inventory."