Experts say that spiraling inflation and mortgage rates, along with a housing affordability crisis caused by low inventory, shockingly high rents, and a reduction in real earnings, might lead to a recession.

Mortgage rates in the United States reached a 12-year high last week, while home prices established a new high in March, according to industry group data released on Wednesday. This comes while inflation is at an all-time high of 8.5%, the most in 40 years, yet real wages continue to decline month after month, according to the Labor Department.

How can inflation be combated? 

On Thursday, Federal Reserve Chairman Jerome Powell stated that the central bank should move faster to boost interest rates even higher to combat inflation. After lowering rates to near zero, the Fed increased rates for the first time since the epidemic in March. However, the number of Fed members has determined that the boost was insufficient to keep inflation under control.

"Inflation has affected the housing market in a lot of ways," Redfin Chief Economist Daryl Fairweather told Sputnik. "There’s extra money floating around, the feds have raised interest rates, and mortgage rates have increased. The scenario at the current pace will be increased interest rates, higher prices, and a possible recession, not most likely but not impossible."

According to the National Association of Realtors (NAR), the median home price in March was $375,300, up 15% from a year ago, marking the 121st consecutive month of year-over-year rises – the longest streak on record. The Mortgage Banking Association said mortgage rates jumped across the board for all loan types, with the 30-year fixed rate reaching 5.2% (MBA).

Zillow stated that the average American home was valued 32.4% more in February than it was in February 2020. In addition, the number of residences listed for sale in February was 48% lower than in the pre-pandemic period two years ago.

As the trend continues, fewer and fewer Americans will be able to afford these prices. The National Association of Realtors' Housing Affordability Index, which gauges how much a typical household can afford in monthly mortgage payments, fell 20% in the year ending in February.

High demand, escalated prices 

Falling inventory has stoked increasing demand and caused home prices to escalate at a robust pace, according to Zillow. Total housing inventory at the end of March totaled 950,000 units, down about 10% from one year ago when it stood at 1.05 million, according to the NAR.

Another indicator of the severity of the difficulty for homebuyers is that residences stayed on the market for an average of 17 days last month. According to the NAR, 87% of homes sold were on the market for less than a month. In February, Zillow reported that residences nationwide went under contract in 11 days, which is six days quicker than February 2021 and 25 days faster than February 2020.

Zillow analysts point to generational demographics, citing a big wave of Millennials entering their peak home-buying years. Simultaneously, Baby Boomers are more active in the housing market than previous generations. As more people gain clarity on their employment agreements, they too will be seeking to make long-term housing decisions, which will have the effect of maintaining demand.