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Home affordability reaches new lows
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With home prices at record highs amid rising mortgage rates, May 2022 was the least affordable month to buy a home in nearly 16 years.
The National Association of Realtors (NAR) housing-affordability index fell to 102.5 for the month, the lowest level since it dropped to 100.5 in July 2006.
The NAR index incorporates several factors, including median existing-home prices, median family incomes and average mortgage rates.
Home prices reached a record average of $407,600 in May, and the typical monthly mortgage payment rose to $1,842 - up from $1,297 in January – nearly a 50% increase in a span of less than six months.
In addition, the Federal Reserve has boosted baseline interest rates several times in 2022 to fight ongoing consumer inflation. As is typical, mortgage rates eventually followed. In June, rates on the popular 30-year fixed-rate mortgage saw their largest jump since 1987.
The sudden rise has cooled the country’s housing market significantly, with sales of previously owned homes sliding in May for the fourth straight month, as prospective buyers deal with increased costs.
The rising cost of homeownership has been particularly difficult on first-time buyers, who have fewer assets to access for an initial down payment. Sales of homes priced under $250,000 have dwindled to almost nothing, squeezing out many younger buyers.
New construction is falling, as well. Single family home permits declined in the first five months of 2022, down 2% from the same period in 2021.
The combination of these factors suggest a decline in homeownership is on the horizon. During the first two years of the pandemic, the rapidly rising prices were somewhat mitigated by record-low mortgage rates.
Further sales declines should be expected in the upcoming months given the affordability challenges. Unless there is a deep and sustained economic downturn, most analysts expect home prices to continue to move higher on average. Others believe home-price growth will reach a peak by the end of the year and then drop.
In many of the hottest pandemic markets, including Boise, ID, Portland, OR, Salt Lake City, and Seattle, home sellers are already beginning to slash asking prices, as the dwindling competition makes sky-high prices unsustainable.
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Not intended to solicit loans in states I am not licensed in. Bay Equity LLC. Equal Housing Opportunity. This is not a commitment to lend or extend credit. Restrictions may apply. Rates may not be available at time of application. Information and/or data are subject to change without notice. All loans are subject to credit approval. Not all loans or products are available in all states. Bay Equity LLC, 770 Tamalpais Drive, Suite 207, Corte Madera, CA 94925; NMLS ID#76988 | NMLS consumer access: www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/76988 | State Licenses: http://bayeq.us/339742
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