An affordability crisis has forced many potential homebuyers out of the U.S. housing market, as steep mortgage rates and limited supply continue to push prices higher. However, some regions are beginning to offer relief, with growing inventory leading to a drop in prices, according to a new report published by Realtor.com.

Identifying "Cold" Housing Markets

Realtor.com identifies "cold" housing markets as areas where houses may be listed for more than a year, resulting in substantial drops in list prices due to sluggish consumer demand. These markets are primarily located in the South, particularly along the Gulf Coast in states like Texas, Florida, and Louisiana. Among the 20 coldest housing markets in the country, 15 are in these three states.

Coldest Housing Markets

The coldest metro area in the country is Lake Charles, Louisiana, followed by Houma, Louisiana; Panama City, Florida; Punta Gorda, Florida; and Naples, Florida. In Texas, Brownsville, El Paso, and Corpus Christi are among the coolest cities.

Realtor.com's analysis is based on several factors, including days on the market, inventory changes, price fluctuations, and unique listing page views per property.

Unique Challenges in Gulf States

The Gulf states are experiencing cooler housing markets due to unique challenges. High home prices and rising mortgage rates have affected affordability nationwide, but Gulf markets also face the burden of expensive home insurance costs. Skyrocketing insurance prices are attributed to weather disasters, rising re-insurance rates, and steep home repair costs as inflation drives up the price of building materials.

Insurance Cost Impact

Insurance costs in Gulf states have risen dramatically due to several factors:

- Weather Disasters: Frequent hurricanes and flooding have increased insurance premiums.

- Rising Re-Insurance Rates: Insurance companies are passing on the higher costs of re-insurance to consumers.

- Inflation: The cost of building materials and repairs has risen, making home repairs more expensive and pushing up insurance premiums.

Expert Insights

"For homebuyers looking for comfort, Southern markets offer much-needed hospitality," said Ralph McLaughlin, Realtor.com economist. "Inventory – especially of entry-level homes – is growing, they are moving slower, and listing prices are actually down compared to last year."

The Nationwide Affordability Crisis

Several factors are driving the nationwide affordability crisis:

- COVID-19 Pandemic: During the pandemic, home prices soared at a pace not seen since the 1970s. Homebuyers, flush with stimulus cash and seeking more space, took advantage of ultra-low mortgage rates and flocked to the suburbs. Demand was so strong, and inventory so low, that some buyers waived home inspections and appraisals or paid significantly over the asking price.

- Federal Reserve Policies: The Federal Reserve initiated the most aggressive interest rate hike campaign since the 1980s to slow the economy and curb runaway inflation. Higher interest rates pushed the average rate on 30-year mortgages above 8% for the first time in years.

- "Golden Handcuff" Effect: Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic have been reluctant to sell, further limiting supply and leaving few options for eager would-be buyers.

Current Mortgage Rates

Mortgage buyer Freddie Mac reported that the average rate on a 30-year loan this week ticked lower to 6.86% from 6.87%. While this is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%.

Impact on Homebuyers

The high mortgage rates and limited supply have significantly impacted potential homebuyers:

- Affordability: Many potential buyers are priced out of the market due to high home prices and mortgage rates.

- Limited Options: The reluctance of sellers to list their homes has resulted in a limited inventory, making it challenging for buyers to find suitable homes.

- Increased Competition: The low supply has led to increased competition among buyers, driving up prices further.

Conclusion

As the U.S. housing market continues to navigate the challenges of high mortgage rates and limited inventory, certain regions are beginning to cool, offering some relief to prospective buyers. The identification of "cold" markets provides valuable insights for those seeking more affordable housing options amidst the ongoing nationwide affordability crisis. These developments highlight the complex interplay of economic factors and regional differences shaping the current housing landscape.