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Welcome to the Deerwood Realty Show. I'm John Schink, founder and managing broker of Deerwood Realty in St. Louis, Missouri. It's been a while, and I apologize for that. Let's get into today's topic: the lock-in effect in the housing market.

Do you know what the lock-in effect is? It's the idea that people who bought houses with a 2% to 3% mortgage rate are reluctant to buy new houses. While I agree with this to some extent, I believe the real issue is affordability, exacerbated by inflation. When houses have increased in value by 40% over the past two to four years, even the less desirable ones, it's clear there's a significant economic issue at play.

Let's dive into the lock-in effect. According to the New York Post, the housing market won't come unstuck until 2026. Economists predict that home affordability won't improve without a recession. I don't fully agree with this viewpoint, and I'll explain why.

The article states that the US market won't stabilize until at least 2026, with home affordability only improving post-recession. While I acknowledge that there are supply issues and short-term rentals impacting the market, I also believe that legislative changes will eventually address these issues.

The article suggests that housing market activity surged during the pandemic due to low mortgage rates, causing a spike in sales. However, in my experience in St. Louis, I noticed multiple offers on homes as early as 2018, well before the pandemic. Additionally, the increase in prices due to lower mortgage rates during the pandemic is inflationary in itself.

The article predicts a rise in home prices by 4.5% in 2024 and 5% in 2025, followed by a decline to 0.5% in 2026. I find this hard to believe. Life goes on—families grow, people change jobs, and they will need to move regardless of market predictions. This assumption overlooks the realities of people's lives.

Millennials face significant challenges in this market. With 30-year mortgage rates hovering near 7%, the lock-in effect could last six to eight years. Even if the Federal Reserve cuts rates, mortgage rates may not fall significantly. This creates a difficult situation for young buyers trying to enter the market.

Despite these challenges, potential homebuyers should focus on saving for a good down payment and maintaining a stable income. If you're planning to stay in a home for the long term, it’s worth buying now. Time tends to solve these issues.

Economic policies and interest rates will continue to impact the housing market. I anticipate more economic turbulence ahead, similar to the 2007-2008 mortgage crisis, though the specifics may differ.

Millennials play a crucial role in housing demand. Unfortunately, many Millennials face an economic environment where wages haven't kept up with inflation, making homeownership difficult. This has led to a shift in priorities, with many opting for short-term rentals and shared living arrangements instead of traditional homeownership.

I'd love to hear your thoughts on this topic. Please leave a comment below. Whether you're watching on Rumble, YouTube, or Twitter, your feedback is valuable.

Thank you for watching tonight. I'll see you next time.