Homes in the US are currently the least affordable they’ve been since 2006, new statistics have revealed, as recent mortgage rate hikes continue to see an unprecedented surge in house prices.
The National Association of Realtors’ revealed Friday that its housing-affordability index – a metric that uses median existing-home prices, median family incomes and average mortgage rates to calculate home affordability – fell to 102.5 last May.
The number is the lowest recorded since July 2006, when the index fell to 100.5 – shortly before the housing bubble burst in 2008, and the number of foreclosed homes surged thanks to predatory lending practices by the country’s big banks.
The number is also dangerously close to the lowest level ever recorded by the index, set in July 1990, when the index stood at 100.2.
The decline depicts a real estate market that is becoming increasingly inaccessible for first-time home buyers, who have been deterred from entering the market by the rapidly rising home prices – which reached a record average of $407,600 in May.
The National Association of Realtors’ revealed Friday that its housing-affordability index – a metric that uses median existing-home prices, median family incomes and average mortgage rates to calculate home affordability – fell to 102.5 last May, the lowest recorded since 2006
The typical monthly mortgage payment, meanwhile, rose to $1,842, NAR said – up from $1,297 in January and $1,220 from a year ago. That’s nearly a 50 percent increase in a span of less than six months.
The drastic increases suggest a decline in homeownership is on the horizon, as prospective buyers entering the market inevitably shy away from deals that would see them have to shell out those amounts – unless, of course, sellers slash those asking prices.
The looming housing crisis comes after a period of relative affordability seen in 2020 and last year during the pandemic, due to record-low mortgage rates – despite prices also raising during that period to satisfy an also increasing demand.
This year, though, shortly before the fed decided to raise interest rates to combat record inflation, banks drastically raised mortgage rates last month, in their own effort to cover prospective losses to be incurred by the US’ diminishing dollar.
In its biggest one-week jump since 1987, the 30-year fixed-rate mortgage, the most popular home loan package, was raised to 5.78 percent in June, up from 5.23 percent seen at the end of May.
It has since reached an even more pronounced 5.83 percent as of the week ending July 1, after coming close to 6 percent.
A year ago, the affordability rate was roughly half what it is today, at 2.9 percent.
The sudden rise has since seen the country’s housing market cool significantly, with sales of previously owned homes sliding in May for the fourth straight month, as prospective buyers deal with increased costs.
The drastic increases suggest a decline in homeownership is on the horizon, as prospective buyers entering the market inevitably shy away from deals that would see them have to shell out those amounts. Sales of homes under $250,000, a price range favored by first-time buyers, have dropped off sharply as interest rates rise, squeezing out young homebuyers
The drop in demand is expected to see home-price growth reach a peak by the end of the year – before inevitably plummeting, economists warn.
‘We’re in a housing-affordability crisis right now,’ Robert Dietz, chief economist at the National Association of Home Builders, told The Wall Street Journal of the phenomenon, citing how real-estate firms have cut asking prices in recent weeks to compensate for the rapidly shifting real estate market.
Homes in cities that have seen marked price growth in recent years, including Boise, Idaho; Phoenix, Arizona; and Austin, Texas, have seen average home prices slashed in recent weeks, according to real-estate brokerage firm Redfin Corp.
Meanwhile, other economists say home prices are likely to continue to rise in the coming weeks, as the inventory of homes for sale generally remains low.
The number of active listings in June was down 34 percent from June 2020, the most recent data from Realtor.com shows, and down 53% from June 2019, before the pandemic.
‘I don’t know that we’ll ever see affordability again like we saw in the last year or two,’ said Mark Fleming, chief economist at First American Financial Corp, of the The National Association of Realtors’ Friday report
Rates on 30-year fixed mortgages don’t move in tandem with the Fed’s set rate, but track the yield on 10-year Treasury bonds, which are influenced factors including expectations around inflation, the Fed’s actions, and how investors react to all of it.
The average price of a home in the US a 14.8 percent surge compared to a year ago, the association said.
With high prices and rising rates squeezing young homebuyers -many being millennials aging into their prime homebuying years – the number of sales of existing homes dropped 8.6 percent from last year, to a seasonally adjusted annual rate of 5.41 million.
The median sales price for existing homes, meanwhile, remains at $407,600, a 14.8 percent surge compared to a year ago.
Median home prices were highest in the West, at $633,800. The median price in the Midwest was $294,500, the South was $375,000, and the Northeast was $409,700.
The US median sales price for existing homes set a new record at $407,600 in May, a 14.8 percent surge compared to a year ago, the National Association of Realtors said
Sales in May were mostly closings on contracts signed one to two months ago, before mortgage rates started accelerating amid a surge in inflation expectations and the Federal Reserve’s aggressive interest rate hikes.
The average contract rate on a 30-year fixed-rate mortgage jumped 55 basis points last week to a 13.5-year high of 5.78 percent, according to data from mortgage finance agency Freddie Mac.
That was the largest one-week increase since 1987. The rate has surged more than 250 basis points since January.
Mortgage-interest rates, meanwhile, are likely to continue to rise amid this economic uncertainty, economists say, with it poised to surpass 6 percent in the coming months if buyers continue to shy away from the new rates and sellers refuse to lower them.
The rates have largely held below 5 since the 2007-09 recession.
The development follows a period where the housing market was fairly hot, when demand saw a surge spurred by investors buying properties to rent out when prices plummeted during the pandemic.
Last year also saw an increased demand from American upended Covid-19 pandemic, hindering choices on where they wanted to live.
Median home prices in May, and the change in price from a year ago, are seen for each region
Jason Roberts is one of many Americans who began the process of buying a home at this time, and has since experienced a change of heart since seeing rates nearly double.
Roberts, who started shopping for his first home in Sacramento earlier this year and was quoted a 3.75 percent mortgage rate, says he has since called off the purchase after seeing rates swell.
‘Now you have high prices and high rates,’ he said. ‘I would like to buy, but the market is just prohibitively expensive.
The demand was seen as recently last month, during which time NAR Chief Economist Lawrence Yun warned that the housing market was likley to cool in the ocming months due to the rise in mortgage rates.
‘Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year,’ he said.
With supply still undesirably low, prices could remain elevated, even though sellers are reducing the list price in some areas where bidding wars were once prevalent.
‘Existing home sales should continue to slow over the course of the year as mortgage rates move higher,’ said David Berson, chief economist at Nationwide in Columbus, Ohio, in June.
He said that the crisis, while serious, should not see a drop in home sales as drastic as the one seen in 2008 – unless the country sees further economic turmoil.
‘But in the absence of a deep and sustained economic downturn, home sales should not drop as they did in the housing bust – allowing prices to continue to move higher on average.’
Existing home sales fell in May to the lowest level since June 2020 when sales were rebounding from the COVID-19 lockdown slump. Sales rose in the Northeast, but declined in the Midwest, the West and heavily populated South.