Is a $1 million starter home the new normal in the US real estate market? New findings published by Zillow show that the typical starter home is worth at least $1 million in more than 200 cities nationwide. Five years ago, fewer than 100 areas cracked the list. With home prices venturing higher and mortgage rates roughly double from before the pandemic, the new trend in the housing market is unsurprising. The chief question for anyone requiring a roof over their heads is this: How can a society in which this is normal remain sustainable?

US Home Prices Hit Another Record

According to the S&P CoreLogic Case-Shiller index, home prices hit a new record of $323,478 in May. The index surged nearly 6% compared to the same time a year ago and rose 0.3% month-over-month, the smallest gain in ten months. Since January 2021, the 20-city composite gauge has surged 37%, further evidence of a country entrenched in an affordability crisis.

“All 20 markets observed annual gains for the last six months,” said Brian Luke, head of commodities, real, and digital assets at S&P DJI, in a statement. “The last time we saw that long a streak was when all markets rose for three years consecutively during the COVID housing boom.”

The latest metric comes soon after the National Association of Realtors (NAR) reported that the median sale price for existing homes climbed to an all-time high for the second consecutive month in June, advancing 4.1% from June 2023 to $426,900.

But current housing market conditions are in a quagmire. Sales activity has come to a screeching halt, more homes are staying on the market longer, and the current crop of buyers appears to be in greater control as they demand inspections and appraisals. Of course, households cannot afford to rent either, with costs flirting with a record high of close to $1,700.

If housing transactions have slammed into a brick wall, then prices should, in theory, be cratering. A part of the reason this has yet to happen is something called the “golden handcuff.” As Liberty Nation News has previously reported, when the Federal Reserve slashed interest rates to nearly zero, mortgage rates collapsed. Homeowners refinanced their 30-year fixed-rate mortgages to 3%, while homebuyers took advantage of cheap home prices and ultra-low borrowing costs.

The other challenge has been years of underbuilding. Industry experts and professional associations estimate that the United States needs between three and nine million homes to restore price stability and meet future demand. While new housing construction activity has rebounded over the last couple of years, the numbers have been subpar. Housing starts have been traveling downward since April 2022, and total units have failed to recover from 2006 levels. Moreover, active listing counts have yet to return to where they were before the pandemic.

Will home prices keep rising heading into 2025 and 2026? The consensus among housing economists is that a correction is on the horizon. But homebuyers should not envision conditions comparable to the Global Financial Crisis when they enjoyed sharp discounts on prime real estate. Instead, housing valuations will steadily rise rather than accelerate. There are a few reasons for this: strict lending standards, the lack of housing supply, and solid demand in a climate of falling mortgage rates.

“Prices will remain firm and will not decline on a national level,” said Lawrence Yun, the chief economist at NAR. “The fundamental reason for the run-up in price is heightened demand and a lack of supply,” said Greg McBride, the chief financial analyst for Bankrate. Mark Fleming, the chief economist at title insurer First American Financial Corporation, says another boom-bust cycle could be coming: “You’ve got an entire generation of pent-up demand. We’re in this fascinating position of tremendous demand and too little inventory. When interest rates do start to come down, it’ll be another boom-and-bust cycle.”

A Question of Sustainability

Is the American Dream dead? The idyllic vision of homeownership, children playing behind a white picket fence, and backyard barbecues might be a thing of the past. The public cannot afford to purchase a house, couples are not having children, and meat is expensive. The demise of housing affordability is a sad reality in a country rich in land and resources, with millions of families unable to qualify for a mortgage. Even renting is out of reach for many as a February 2024 Harvard study showed that a record number of Americans cannot afford rent.

The chief culprit behind this is the government. State and local governments have stifled the construction of new homes, from outrageous zoning laws to considerable taxation. Other jurisdictions have employed rent control laws. Some public officials may see housing as a basic human right, but the reality is it’s a basic good, like anything else in the open market. Unfortunately, when the Leviathan sets its sights on the product, the monster will tax and regulate it to death, resulting in today’s undesirable situation.

The current administration has tried to improve the housing market through grants, investments, and tax credits. But if throwing money at the problem is the panacea to what ails the nation, then homelessness and poverty would have been eradicated decades ago.