About two-thirds of the country owns a home in the United States:

For those in this group who have owned their homes for a year or more, they are sitting on some very nice gains.

When you combine rising house prices with ultra-low mortgage rates1you could tell the owners have never had better.

A fixed rate mortgage with house prices up 20% over the past year has been the best inflation hedge you could ask for in the current environment.

You could argue that the current housing environment has benefited the bottom 50% of households more than the top 1% on a relative basis:

Of course, the top 1% own most financial assets as well as some real estate. But on a relative basis, the bottom 50% have the majority of their net worth tied to their primary residence.

While it’s been a wonderful environment for those who currently own a home, it’s likely to make it worse in the future for those in the bottom 50% who don’t own a home but would like to have one someday.

Here are some statistics from a recent Redfin update in the housing market:

  • The median home sale price rose 15% year over year to $354,762. This represents a 30% increase compared to the same period in 2020.
  • The median asking price for newly listed homes rose 16% year-over-year to an all-time high of $381,000. This represents a 26% increase over the same period in 2020.
  • The monthly mortgage payment on the median asking price hit an all-time high of $1,997. This is an increase of 27% from the previous year, when mortgage rates were 2.73%, and 31% from the same period in 2020, when rates were 3, 47%.
  • Open listings (the number of homes listed for sale at any point in time) fell 27% year-over-year, falling to an all-time low of 447,000. Registrations are down 49% from the same period in 2020.
  • 57% of houses under contract had an offer accepted within the first two weeks on the market, an all-time high. This rate was up from 51% the previous year and 43% in 2020.
  • 44% of homes under contract had an offer accepted within a week of being put on the market, an all-time high. This figure was up from 38% in the same period a year earlier and 29% in 2020.
  • Homes sold were on the market for a median of 29 days, down from 38 days a year earlier and 60 days in 2020.
  • 41% of homes sold above list price, compared to 33% a year earlier and 19% in 2020.

To summarize – low supply, higher monthly payments, bidding wars and rising prices. Not great if you’re looking for a house and don’t currently own one.

This housing market will not last forever. No trend does. We simply cannot see house prices rising at their current level indefinitely into the future.

But it doesn’t look like the current unhealthy housing market will suddenly improve anytime soon. It could be years before we see anything close to normal in residential real estate.

The problem is that rising mortgage rates and rising house prices have resulted in the highest monthly payment on record for the median mortgage payment.

This is going to make it even harder for the bottom 50% to participate in the housing market.

The subprime mortgage crisis was terrible for many people who overworked themselves and took on too much debt or too much house.

But there were probably plenty of people who bought a home in the housing bubble of the 2000s who didn’t lose their homes and are in a much better financial position because they were able to access a mortgage and buy a house.

House prices are much higher than they were even at the height of the housing bubble:

Lending standards were far too lax back then, but there were certainly people in the bottom 50% who took advantage of them.

Look at how things have changed since the 2008 financial crisis and all the banking regulations that were put in place because of it:

From 2004 to 2006, an average of about a quarter of mortgage originations took place for people with credit scores of 659 or lower.

From 2019 to 2021, only 6% of mortgages went to households with a credit score of 659 or lower.

Clearly, these numbers contribute to a healthier financial system and help mortgage-issuing banks. These numbers help explain why I don’t think we’re in a real estate bubble right now, even with prices rising rapidly.

But it is also true that it will be much more difficult for people with less means to buy a home now that house prices are much higher and credit standards are tighter.

And you could argue (as I have here) that the US housing market still has room to get even crazier than it already is compared to other developed countries:

I don’t know for sure if US housing prices will continue to rise.

The future is unpredictable, as always.

But the setup is there for a continued rise in prices based purely on demographics and housing supply.

If this happens and the majority of mortgages continue to go to those with more means, the gap between haves and have-nots will continue to widen.

Michael and I explained why this is one of the craziest real estate markets ever and more in this week’s Animal Spirits video:

Inasmuch as

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Further reading:
Why US Housing Prices Aren’t As Crazy As You Think

Here’s what I’ve read lately:

1Mortgage rates are finally rising (to over 4%), but anyone who has owned a home for free for more than about 12 months has had the option of refinancing or locking in a low rate at the time of purchase.