Could Denmark's Mortgage Model Save Us? | 1-Minute Market Update w/ Martin Perdomo

Is the American Dream of homeownership slipping away for millennials? This week, we unpack the harsh realities of the current US housing market—mortgage applications are plummeting, Google searches for homes have dramatically declined, and the median sales price has soared past $390,000. Interest rates are pushing monthly mortgage payments to record highs, leaving many Americans struggling to afford a home. Despite a rise in active listings, the market is still fiercely competitive, with homes averaging just 32 days on the market. Explore what these trends mean for both buyers and sellers and why many current homeowners are unwilling to give up their favorable fixed mortgage rates, creating a bottleneck in housing availability.

But what if there were a solution across the Atlantic? We're taking a closer look at Denmark's mortgage system, which uses covered bonds to offer homeowners more flexibility even when interest rates rise. This innovative approach allows Danes to pay off their mortgages for less, making it easier for them to sell their homes and move on. Could such a system work in the US, and what would it take to implement these changes? Join us as we dive into the potential benefits and challenges of adopting a Danish-style mortgage system in America, and what it could mean for the future of homeownership, especially for millennials. This is your weekly real estate market update you won't want to miss!

Transcript

Speaker 1: 0:01

Denmark may have solved the US housing market crisis, but before that, let's take a look at this week's housing market data. Today is May 31st 2024, and this is your weekly real estate market update. Still fewer people are swiping right on houses. This week, mortgage applications to buy a place dipped 1% compared to last week and are down 10% from this time last year. Yikes, remember all that FOMO, fear of missing out, scrolling on these houses listing apps last year? Well, it's dead, as Google searches for homes for sale are flat compared to last month, but way down by 14% from a year ago. Looks like the house hunting frenzy might be over.

Speaker 1: 0:50

The median sales price for a home is a whopping $390,613. That's basically saying houses are costing more than ever before. With these interest rates, that $416,623 is the median asking price for a house. Yeah, that's more than your down payment on a sweet new Tesla. Home ownership might have to wait for a bit. For most Americans, the median monthly mortgage payment now is $2,812 at a 6.94% interest rate. That means spending on housing could eat up your entire paycheck. Each month. There are more houses on the market, and there's been for a long time. Active listings of homes are up 15.2%, hitting the highest level since December of 2022. 15.2%, hitting the highest level since December of 2022. This might be good news for you if you've been struggling to find a place to swipe right, but it could also mean prices might stay high or a bit longer. So it's a double-edged sword situation. The median time a home stays up for sale is 32 days. This means, if you find the right place, you might need to act, because competition could be fierce, which is a little weird, because while inventory is up, rates are high, portability is out the window. Still, the median days on the market is 32 days. So interesting data here that Redfin has given us. Here's a brief rundown of what's currently happening in the US market. Here's the deal In the US, most mortgages lock you in a fixed rate for 30 years.

Speaker 1: 2:34

This is supposed to be a good thing. It gives you stability and lets you budget easily. But right now, it's actually hurting the housing market, especially for young people trying to buy their first home. Well, how, you may ask? Let's say you snagged a super low rate a few years back. Why on earth would you ever want to sell your house and give up that sweet deal With interest rates way higher now any new mortgage you get will cost you a lot more each month. So people with those low rates are holding on to their houses for dear life. This means fewer houses on the market, which drives up prices, making it even harder for millennials to afford a home. It's a vicious cycle, guys. But there's glimmer of hope from across the Atlantic.

Speaker 1: 3:17

In Denmark, they have a different system of mortgages that avoids this whole mess. The key difference something called covered bonds. These are basically like financial packages that bundle together mortgages and sell them to investors. Here's the cool part when interest rates go up, the value of those older, cheap mortgages actually goes down. This means that Danish homeowners can pay off their mortgages for less than they originally borrowed. This frees them up to sell their house and move on. Even with higher interest rates, they're not stuck house hunting for the rest of their life just because they got a great deal a few years back.

Speaker 1: 3:54

Sounds too good to be true, right? Well, maybe Changing the US mortgage system to be more like Denmark would be a massive undertaking. More like Denmark would be a massive undertaking. It would likely involve overhauling big government programs and could even mean higher interest rates for everyone at the beginning. But here's the thing the US had made big changes to the mortgage systems before, during the housing crisis of the 2000s. Maybe a similar update is what we need now to help millennials out and make the whole housing market more flexible. The bottom line those cheap mortgages a double-edged sword. They were great for people who got them, but they're making things tough for everyone else. There might be a solution out there, but it would take a lot of work to put it in place. Let's see what happens. And this has been your weekly real estate market update. I'll see you guys next week. Peace.