The bid-ask spread in the housing market persists. Over the last several years, home sellers have become accustomed to double-digit percentage price increases annually, going under contract within a week, and—very often—fielding competing offers above list price.
Since roughly 2023—after benchmark interest rates began rising in 2022, slightly cooling capital markets—this is no longer the case. Buyers couldn’t afford high prices even before 2023, yet paid them nonetheless due to the presence of artificially low interest rates. Now, however, prospective homebuyers are making offers that undercut list prices substantially. But rather than finding a zone of potential agreement and clearing the market, sellers are taking their houses off the market altogether.
Still a Seller’s Market
According to a realtor.com report, delistings are up 47 percent nationwide in May from a year earlier and up 35 percent year to date over the same period last year.
Clearly, there is no pressure for sellers to sell. Most have mortgages that carry half the interest rates prevailing today. The prospect of paying 7 percent on their next home mortgage when they’re paying 3.5 percent today does little to motivate sellers. By the same token, most of them are sitting on huge amounts of home equity built up over the course of the last several years, as asset price inflation has raged. There is little threat of falling prices putting them underwater and thus no sense of urgency to sell at prices they don’t like.
Most analysts have argued that the deluge of delistings indicates seller frustration, but this is misleading. Combine the previously described dynamic with the fact that median list prices have essentially stayed the same since 2023, and it’s clear that sellers remain in control of this market.
Sellers may be slightly perturbed that their demands are not being met immediately, but it is buyers who remain frustrated and lacking control. Seemingly nothing can penetrate the pervasive inflationary environment and produce the deflation the housing market seems to desperately need. Home prices remain at or near all-time highs, with the Case Shiller National Home Price Index staying near its peak despite hardly perceptible declines in recent months.
Downstream Effects
The inability of a market—in this case the housing market—to clear is a sign of dysfunction. And this dysfunction has obvious origins and reasons. The ZIRP era lasted from roughly 2008 to 2022, hitting its zenith in December of 2020 when $18.4 trillion in bonds worldwide offered negative yields. The impact of such aggressively ignorant policy, especially on individual Americans, can’t be understated.
For starters, driving down interest rates is inflationary by definition. New money is created ex nihilo by the central bank. That new money is used to purchase securities from commercial banks (and sometimes indirectly from non-bank entities), thus expanding credit and loanable funds. This brute force method of reducing interest rates, driven by inflation of the money supply, is also price inflationary. Over the last 15 years, that price inflation has been especially prevalent in capital markets including the housing market.
As asset prices climbed and interest rates remained low, only those with significant asset exposure were able to see appreciation in their net worth and standard of living at a pace that approximated overall price inflation. Those without such exposure, to the extent they had any savings at all, were left to stow away cash in CDs and other instruments yielding next to nothing on a nominal basis, and negative rates in real terms.
The result as it pertains to housing is a massively bifurcated market where—increasingly—only the old and wealthy can afford to participate. So, what we appear to have now is a housing market where the old and wealthy are simply selling to others within their cohort.
The aforementioned dynamics in the homeownership market are not limited to financial analysis—they have impact on the life path of the individual American. To wit, the average age of first-time homebuyers is now at an all-time high of 38 while the average age of all buyers is also at an all-time high of 56. As the younger, necessarily less wealthy, are crowded out of the housing market, family formation is delayed. The data supports this.
As noted in a report by JBREC, compared to their predecessors in the last several decades, women today are less likely to become mothers, more likely to delay childbirth, and have fewer kids overall.
Along the same lines, today’s average 30-year-olds continue a trend of “delayed adulthood” by many measures. Only 70 percent live on their own, only 48 percent have ever married, and only 33 percent own a home.
Viewed in isolation, these trends could be viewed as good, bad, or neutral. But in the proper context—that of monetary policy that increasingly makes upward mobility harder—they illustrate a stagnating society. For the young in particular, building a meaningful life is increasingly constrained by policies that inflate asset prices, devalue wages, and punish saving.
Nefarious Causes
Monetary inflation—pushed by the central bank and supported by the administration—is not simply an inefficient way to allocate resources. Rather, it is a pernicious curse unlike any other in scope and magnitude. From pointless wars that kill millions to the productive retardation of entire generations, monetary inflation enables a spectrum of evils hard to imagine in its absence.
That successive administrations have not recognized that this is no coincidence, as the ability to print money is the ultimate weapon of the state—that which makes all others possible. Riding on the success and credibility of our more-free market past—and the prosperity it created—we are now amortizing that credibility quickly. Impossibly-expensive homes are simply one among the laundry list of ill effects.
