The US residential real estate market has seen extreme changes that have been rare since World War II. Prices have rocketed higher over the past two years, triggered by low mortgage rates and a preference for living outside of major cities. Very recently, demand and prices have fallen shockingly fast, mainly due to mortgage rates which have doubled in less than a year. Homebuilders have begun to slow or suspend activity as mortgage rates kill demand for new homes. The worst case of this problem is the New York metropolitan area. A recent survey shows that a single construction permit for new houses was issued for 38 new jobs.

The National Association of Realtors is holding a Monitoring the housing shortage. The criterion used for the calculation is the number of new family residence permits issued in relation to new jobs in 178 metropolitan areas. The national historical average is one permit for every two new jobs.

For the 12-month period ending in July, there were 497,000 new jobs in the New York-Newark-Jersey City subway. During the same period, 13,229 new family residence permits were issued. As part of a review of the information, NAR’s Senior Economist and Director of Property Research says The Hill“Keep in mind that as more people re-enter the workforce, housing demand should remain strong as they aim for home ownership.”

Unfortunately, many people who want a new home will not be able to afford it. And cities like New York, with extremely high median values, will present an even greater challenge for potential buyers.

A year ago, mortgage rates were around 3% for a 30-year fixed rate mortgage. This figure is just below 7% today, pushed by the interest rate increases implemented by the Federal Reserve to calm inflation. In recent months, the monthly mortgage payment for new loans has increased by hundreds, if not thousands of dollars per month due to this increase.

Unfortunately, for homebuyers, things will have to get worse before they get better. The Federal Reserve will have to try to bring inflation down with a series of rate hikes that will continue through 2023. Economic activity will slow significantly and recession is almost certain. People will lose their jobs and pull out of the home buying market. Housing demand will slow.

However, the picture is not perfect for an improving housing market from the perspective of builder buyers. High interest rates make building houses more expensive. Home builders face high borrowing costs for construction. Interest rates will eventually have to come down to boost construction activity.

The variables in house price economic models are dizzying, making it impossible to predict the future of the housing market. For now, there will be a housing shortage in New York that will last for years.