Home prices in the U.S. have risen to unacceptably high levels, making buying a home or renting an apartment unaffordable for many citizens. What are the main reasons for this phenomenon and what will happen next? The Kobeissi Letter, a publication that analyzes global markets, shares the latest market data.

Home prices have reached record highs

According to a report by Redfin, the average mortgage payment in the U.S. this July was $2605 per month, up 19% from a year ago. This marked the highest in history. Equally striking, 31 states across the country have average monthly home payments over $2,000, with Hawaii standing out with a record $5,000 per month. Other states are also facing extremely high home prices: for example, the average mortgage bill in California is $4800 and in Massachusetts it's $4000.

Let's break down the case of California. Only 16% of households in that state qualify to buy a median-priced home, according to data from the local association of realtors for the second quarter of 2023. That's down from 19% in the first quarter and 17% a year earlier.

The median price of a single-family home in California is $830,620, and it required a minimum annual income of $208,000 to purchase in the second quarter—the amount of money needed to make a 20% down payment and qualify for a 30-year mortgage.

Price growth against the background of limited supply

According to experts, one of the key reasons for rising housing prices is a lack of supply. Many homeowners with entrenched low mortgage rates below 4% are in no hurry to sell their homes, fearing high interest rates when buying a new home (now at 7%). This leads to limited availability of homes on the market and therefore higher prices.

Renting has also become unaffordable

Not only buying but also renting has become unaffordable for many Americans. The average rent for a single-family home has reached a record $1900 per month. This figure is also one of the highest in the country's history.

Outlook for the U.S. real estate market

According to Adam Kobeissi, founder and editor-in-chief of The Kobeissi Letter, the real estate market situation is different from the 2008 housing crisis. The problem is limited supply, not a lack of demand. He noted that ramping up construction can help, but the sticking point is still the price of building materials, which has remained excessively high since the pandemic.