After years of consistent growth driving an affordability crisis in the U.S. housing market, Andy Walden, ICE vice president of enterprise research, recently identified three extreme scenarios necessary for normalization: a 55% increase in U.S. incomes, a 35% price correction, or a 4% decline in mortgage rates.
Despite strong demand, the housing market has been constrained by a lack of inventory, with housing data remaining "red-hot" in August, according to Insider. Rising mortgage rates have also affected affordability, causing demand to drop and the supply of homes to decline, creating a gridlock in the market.
"If you look at home affordability itself, and what it would take to normalize the market today, it's a 35% correction in price, or a 4% decline in rates, or a 55% growth in income," Walden said. "Some combination of those. Those are massive movements we're talking about, and none of them are going to happen in a vacuum, and none of those one single factors are going to make the move."
"Demand has hit its lowest point during the pandemic over the last three weeks, certainly constraining the market and affordability and its lowest level in 40 years," Walden said.