Housing Costs Cause Home Deals to Collapse

According to recent reports, more than 60,000 home deals fell through in July of 2024. That equals about one-fifth of all home contracts in the US that month, and it’s a record. When asked why they were ending their agreements to buy houses, people said it was because of the high prices and concerns over the coming presidential election, according to Redfin, a real estate brokerage firm.

Home Sales Low, Prices High

“Many house hunters are getting cold feet because housing costs remain high,” Redfin reported. “Economic uncertainty is also high, with recession fears on the rise.”

There were 3% fewer contracts for sale than the previous month, and 6% fewer than the previous year. These were both the biggest declines in about a year. And last year’s sales numbers were the lowest recorded since Redfin launched its data tracker in 2012.

Home prices are up, as well, rising more than 5% from last year – up 1,100% since 1974! The average house cost in the United States 50 years ago was about $35,900, while today the average cost is $412,300. Even when adjusted for inflation, that’s still an 111% increase – more than double. Down payments are also considerably higher. According to Redfin, the average down payment for a house rose 15% to $67,500 – almost twice the entire sale price of the average house in 1974.

Record High Rents, Too

Annual rental prices have gone up as well. According to Zillow, a website that tracks housing data, rent is up 5.1% from last year, which is more than a 30% increase from the average before the COVID-19 pandemic. The national media rent was $1,647 in July, which is down just $53 from the all-time high in 2022.

Rent does seem to be leveling off though, probably because of all the new apartments build recently. That might not hold though. “Sheharyar Bokhari, senior economist at Redfin, explained that rent has steadied – and maybe even dropped a little – thanks to the new buildings – but it may not last. “Construction is slowing down, and prices will eventually start rising again,” Bokhari said, “but now is still a good time for renters to find a deal, especially families looking for an apartment with at least three bedrooms.”

As high as rent has become, the even bigger problem might be the housing supply itself. According to the latest data, the number of renters has increased to a record 45.2 million. Some cities are now even seeing more renters than homeowners. Hartford, Connecticut, for example, holds the record for percentage of the population who rents vs owns. It’s 77% renters!

The increase in home price and rent – along with the demand for new rentals – doesn’t seem likely to end any time soon unless there’s a new construction boom in every state. So, will more home deals collapse in the coming months?