Housing Affordability in the U.S. is at a Record Low

file photo by Boyd Loving

the staff of the Ridgewood blog

Ridgewood NJ, the average rate for the most common type of mortgage in the US has risen to almost 7.1%, according to data from a survey of lenders made by mortgage financing giant Freddie Mac. The figure—for 30-year fixed-rate loans—is the highest since December 2001 and is up two percentage points over the past year (and more than 4.4 points from the all-time low seen in January 2021).

Among other factors, mortgage rates are influenced by the Federal Reserve, which hiked the federal funds rate from 0% to 5.25-5.5% over the past year and a half in an effort to fight inflation. Higher mortgage rates mean higher costs for would-be homebuyers and tend to cause a slowdown in the housing market. Sales of existing homes dropped by almost 19% year-over-year in June, according to reports—though the median price increased to $410K, close to an all-time high.

Homeownership is by far the most important pathway to building wealth in the U.S. A buyer making a 20% down payment on the median-priced house would pay $465K in interest over the life of a 30-year fixed-rate mortgage (see calculator)—more than the cost of the house itself.

According to Goldman Sachs in a new note its credit strategy research team forecasts home prices will rise 1.8% this year and previously they’d predicted a drop of 2.2%.

With home prices going up and mortgage rates at a stunning 22-year-high  the situation is looking increasingly bleak for Americans looking to buy a house. People looking for homes in Hoosier State always want to find the most affordable mortgage rates Indiana can provide so they can peacefully purchase their dream home. What’s more, the pandemic has exacerbated this issue as many people have lost their jobs or had their incomes significantly reduced. This means that even for those who were able to afford a home before, it may now be out of reach.

“Talking Heads” had believed that rising mortgage rates would force home prices lower and they did in fact fall by 13% from their 2022 peak. But prices are still 26% higher than they were in the first quarter of 2020.

And now, even with mortgage rates hitting new highs, home prices are heading back up again. That’s largely because there are not that many houses on the market, as homeowners cling to their low mortgage rates and don’t want, or can’t afford, to move.

The inventory of available single-family homes for sale is at about 1 million — the lowest level, by far, going back to 1999, per National Association of Realtors data and Goldman research. (Before the pandemic, there were closer to 2 million homes.)

Case-Shiller’s national price index rose 1.2% in May, the third month of increases, according to data out last month.

This puts housing affordability in the U.S. is at a record low dating back to 1997, according to an index tracked by Goldman that incorporates mortgage rates, home prices and household incomes.

 

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