Despite signs of a cooling down in the market, it doesn’t seem like much relief for homebuyers.
A year ago, a buyer who paid a 20% down payment for a single-family home priced on the average of $363,800 and paid the rest at a 2.88% mortgage rate (average at the time) paid $1,208 per month.
Over the past five years, average home prices have risen by 60%, but average incomes have risen by less than 15%.
“House prices are very different from income levels,” Walden said.
Americans now spend more than 35% of their average income on monthly principal and interest payments on a new, average-priced home. Historically, Americans spent nearly 25% of their median income on payments.
Walden said it would take some combination of these to get back to that level: a 40% increase in personal income or a halving of mortgage interest rates. or have to be 30%.The median drop in home prices.
But none of these things are likely to happen anytime soon.
how did we get here
Buyers are now grappling with a combination of rising home prices and higher mortgage rates.
“When interest rates returned to 6% levels, we had a problem,” Walden said.
The other side of the problem is supply. Eager buyers faced a long-prepared nationwide housing shortage, creating a mismatch between supply and demand that pushed home prices higher.
The shortage of units is so severe that it will take more than a decade to catch up, according to the NAR.
But more houses and apartments mean nothing if people can’t afford them.
So what happens next?
In the meantime, however, mortgage rates could rise further as the Federal Reserve continues to raise interest rates in its fight against inflation.
The Fed does not directly set the interest rate borrowers pay on their mortgages. Instead, mortgage rates tend to track his 10-year Treasury yield. Investors often sell Treasury bonds in anticipation of his Fed rate hikes, which drives up yields and raises mortgage rates.
Most housing policy experts say that solving the affordability crisis requires building a steady supply of affordable new housing. However, these homes are not as profitable for builders as larger, more expensive homes, so both the public and private sectors need to work together.
However, this is not something that can be resolved quickly and some require parliamentary action.