Fannie Mae, a real estate company that holds a quarter of all mortgage loans in the United States, has recently stated that housing prices are at their highest in twenty years, a trend never seen before.
Priscilla Almodovar, the CEO of Fannie Mae, discussed the Lock-in Effect, high mortgage rates, soaring home insurance costs, and how climate risks are impacting homebuyers in an interview with the well-known American financial website MarketWatch.
The pressure brought by high interest rates and soaring housing prices has caused the housing market to stagnate. Economists at Fannie Mae predict that only four million existing homes will be sold in 2024, the lowest number since 1995.
Almodovar has been named one of MarketWatch’s 50 most influential figures for 2024 due to her 20 years of work in the housing policy field, making her very familiar with the challenges currently faced by the US real estate market.
She stated, “The current market is very difficult to afford. We are monitoring and tracking all these trends, all of which are unprecedented to us.”
Even for buyers who can afford the housing prices, the availability of homes on the market is limited. The market is being affected by the Lock-in Effect, where current homeowners see little incentive to sell their properties with higher interest rates to purchase more expensive homes.
The Lock-in Effect is an unusual phenomenon that is causing the housing market to stagnate. The Federal Housing Finance Agency estimated in March that homeowner reluctance to sell homes led to a 57% decrease in home sales in the fourth quarter of 2023 compared to the same period the previous year.
The agency stated that, in other words, the Lock-in Effect “prevented” approximately 1.33 million homes from entering the market.
Almodovar mentioned that mortgage rates are unlikely to return to pre-COVID-19 levels anytime soon. Regarding the 3% rates seen during the pandemic, she remarked, “We may never see those again in our lifetimes.”
The majority of Americans still aspire to own their homes. According to a 2023 survey by LendingTree, around 84% of respondents stated that homeownership is part of their American dream.
Almodovar believes that the current environment has made housing “one of the most crucial domestic policy issues we must address.”
Vice President Harris posted on social media in July that “every American should have access to affordable housing” and urged restrictions on rent increases for landlords with more than 50 rental properties to avoid the risk of losing federal tax breaks.
Former President Trump, a real estate mogul, significantly reduced taxes on business income, investment profits, and estate taxes during his presidency, leading to an active real estate market. However, the Federal Reserve initiated interest rate hikes to curb the market, causing a decline in home sales by the end of 2018 as mortgage rates rose.
Trump promised during his 2024 presidential campaign to end inflation and address price issues in areas such as cars, housing, insurance, supply chains, and prescription drugs, aiming to achieve results within the first 100 days of his new administration.
Housing affordability has become increasingly challenging due to difficulties in paying down payments, high mortgage rates, and rising insurance costs. Recent natural disasters, such as hurricanes Milton and Helen, have posed new challenges for homeowners and the real estate industry.
While real estate companies are striving to provide potential buyers with climate risk information, government agencies are intensifying efforts to assist disaster-affected homeowners and implementing foreclosure moratoriums on FHA-insured mortgages.