US housing market is in historic decline, with homebuyer demand collapsing and costs at a 134-year high
The US housing market is experiencing one of its most severe downturns in history, with mortgage applications plunging to record lows and home affordability reaching critical levels, according to Michael Eisenga, president and CEO of First American Properties.
“We’re witnessing the biggest collapse of homebuyer demand in US history,” Eisenga stated in a recent analysis. Mortgage applications have dropped by 63% since their pandemic peak, surpassing the declines seen during the 2008 financial crisis. Compared to pre-pandemic levels, applications remain down by 52%.
The current crisis is driven by a combination of soaring home prices and elevated mortgage rates. During the pandemic, record-low mortgage rates fueled demand, pushing prices to unprecedented levels. Today, those same homes are unaffordable for many buyers. For instance, a $400,000 home in 2019 with a 3.5% mortgage rate had a $1,796 monthly payment. That same home, now priced at $500,000 with a 7.26% rate, costs $3,416 per month—a $1,620 increase that many households cannot afford.
Eisenga highlighted that while 7% mortgage rates are not historically abnormal, they are now compounded by home prices that are 80% above long-term averages. This has resulted in the highest inflation-adjusted housing costs in 134 years. Even during the 2008 housing crisis, price levels were not as extreme as they are today.
The income required to purchase a median-priced home has surged to $114,900 annually—far above the median household income of $74,000. This growing affordability gap is locking many potential buyers out of the market.
The “golden handcuff” effect is also contributing to the crisis. Many homeowners who secured low-interest mortgages in previous years are reluctant to sell, as doing so would mean taking on significantly higher rates. While inventory has risen to over 1.15 million homes, Eisenga warned that this does not indicate a healthy market.
Nearly half of US states are experiencing price declines, with home values dropping faster than before the 2008 financial crisis. Without substantial price reductions, many buyers remain sidelined, unable to afford homeownership.
Eisenga emphasized that meaningful improvements in affordability will require both lower interest rates and a correction in home prices. However, with rates not declining at the necessary pace and wages growing only modestly, it could take years for incomes to catch up with current price levels.
Luxury housing markets, particularly in high-cost coastal areas, are showing signs of weakness. High-end properties are staying on the market longer and undergoing multiple price reductions—an early indicator of a broader market slowdown.
As Baby Boomers age and downsize, a greater supply of large homes could enter the market, potentially influencing price trends in the coming years.
Despite the challenges, Eisenga remains optimistic. “Housing markets are cyclical, and while the short-term outlook is bleak, conditions will eventually improve,” he said. He advises prospective buyers to remain patient and monitor market trends closely, as price corrections could present future opportunities.
“These downturns usually play out over a three-to-five-year period. So be patient, and you will be rewarded,” Eisenga noted. For now, the US housing market remains in a precarious position, with affordability and inventory challenges likely to persist in the near term.
Sources -
https://www.newsweek.com/homebuyer-demand-plunge-lowest-level-thirty-years-2014469
https://nypost.com/2025/02/08/us-news/the-cost-of-a-home-soared-in-nearly-90-percent-of-us-cities-study-shows/
