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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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Rocket Mortgage, LLC; NMLS #3030; www.NMLSConsumerAccess.org. Licensed in 50 states. AL License No. MC 20979, Control No. 100152352. AR, TX: 1050 Woodward Ave., Detroit, MI 48226-1906, (888) 474-0404; AZ: 1 N. Central Ave., Ste. 2000, Phoenix, AZ 85004, Mortgage Banker License #BK-0902939; CA: Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act; CO: Regulated by the Division of Real Estate; GA: Residential Mortgage Licensee #11704; IL: Residential Mortgage Licensee #4127 – Dept. of Financial and Professional Regulation; KS: Licensed Mortgage Company MC.0025309; MA: Mortgage Lender License #ML 3030; ME: Supervised Lender License; MN: Not an offer for a rate lock agreement; MS: Licensed by the MS Dept. of Banking and Consumer Finance; NH: Licensed by the NH Banking Dept., #6743MB; NV: License #626; NJ: New Jersey – Rocket Mortgage, LLC, 1050 Woodward Ave., Detroit, MI 48226, (888) 474-0404, Licensed by the N.J. Department of Banking and Insurance.; NY: Rocket Mortgage, LLC, 1050 Woodward Ave., Detroit, MI 48226 Licensed Mortgage Banker-NYS Department of Financial Services; OH: MB 850076; OR: License #ML-1387; PA: Licensed by the Dept. of Banking – License #21430; RI: Licensed Lender; WA: Consumer Loan Company License CL-3030. Conditions may apply.
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