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HOME AFFORDABILITY is finally taking a hit now that mortgage rates have ticked higher. Last May, I wrote that property prices were through the roof but homes were still affordable. The reason: Historically low borrowing rates, coupled with record high median family income, had offset robust home prices.
The National Association of Realtors’ latest figures show housing affordability rivals that of last May. But the figures don’t yet reflect higher interest rates. Freddie Mac posts the latest set of mortgage rates each Thursday. The most recent data show that the average 30-year fixed-rate mortgage has surged from 2.77% last August to 3.55% for the week ending Jan. 27. Similarly, 15-year fixed-rate mortgages have jumped 0.7 percentage point since August.
Meanwhile, the most recent S&P CoreLogic Case-Shiller National Home Price Index shows that real estate prices continue to rise sharply, up 18.8% in the year through November. Zillow’s price index, which was updated Dec. 31, indicates that the median home value is now $320,662, up 19.6% from a year earlier.
On the income front, families might have tighter purse strings this year, since further stimulus payments are unlikely. Recall that in 2021 stimulus checks were doled out to low- and middle-income individuals and families in January and March. Enhanced child tax credits also boosted checking accounts. In January, for the first time in six months, families didn’t receive those payments.
All these factors should result in worse home affordability readings from the National Association of Realtors. Housing, it seems, might finally be out of reach for some prospective buyers.
Housing is already out of reach for many home buyers. The are taking on the chin with rising rents, but home prices are too high for them to buy, even if owning is the same or lower cost than renting. Down payments requirements are too high and they are competing with cash buyers. There are even new services now that provide cash (so one can make a cash offer) and you mortgage through these companies. All so one can compete with cash buyers who are outbidding those who can come up with a down payment. Rising interest rates will only help cash buyers that much more as they don’t care about mortgage rates.
We’ll see how high mortgage rates really go. It could be that affordability remains ok. But high prices might cause sticker-shock and lead to more folks shacking up with family? I’ve been curious/thinking about that. Or a continued exodus from urban areas to rural?
.. maybe the Biden Administration will repeat Obama era of giving ANYONE a home loan knowing they can’t pay it back then the bubble pops! So we all have to suffer for the sake of fairness.
For the sake of fairness, we should probably note that the housing bubble peaked in 2006. George W. Bush was president.
To be fair, Bawney Fwank & co. Insisted on banks making loans to people who would have been rejected in earlier times.
.. yeah and the “too big to fail free money” for the banks and not American people was the solution..guess Bush is on the hook for that one also..