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The ripple effects of rising interest rates are becoming glaringly evident, not just within the U.S. but globally. Germany is witnessing a record decline in real home prices, falling almost 25% from 2020 peaks—a trend mirrored in the U.S., as showcased in today's bonus chart. Yet, paradoxically, homes have never been more out of reach for many. With a 30-year fixed mortgage now at 7.78%, homes today, even post-price adjustments, are less affordable than in notable years like 2008 and 1989. To realign home affordability with its 25-year average, we'd need a combination of home prices to drop by 28% and a reduction of over 400 basis points in 30-year mortgages or a healthy 60% surge in household incomes.
The repercussions of a housing market slowdown can't be understated. About 2.9% of the U.S. workforce—equating to 7.8 million individuals—are in construction, with an additional 1.6 million working as realtors. Historically, shifts in the housing sector have been pivotal in catalyzing recessions.
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