A new housing industry report shows that home affordability is plumbing staggering new lows, with the qualifying annual income for a median-priced home more than doubling from where it was in 2020 to a whopping $107,000.
The report shows that, in 2020, the qualifying annual income (based on a 20 percent down payment and a 25 percent qualifying ratio for monthly housing expense to gross monthly income) to buy a median family home was $49,680.
That’s less than half of what it was in August 2023, the latest month of available data, according to NAR.
That’s the highest annual income needed to afford a home on record.
The national median payment applied for by purchase applicants inched down from $2,170 in August to $2,155 in September, per MBA.
“Although there was a modest improvement in affordability last month, higher rates and low housing inventory are both keeping many would-be buyers out of the housing market,” Edward Seiler, MBA’s associate vice president, Housing Economics, said in a statement.
One-Two Punch of High Mortgage Rates and Few Listings
Sky-high mortgage rates and rising home prices due to short supply have delivered a one-two punch to prospective homebuyers.“In a homebuyer’s ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. But that’s not what’s happening now: Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates—and that’s propping up prices,” Redfin Economics Research Lead Chen Zhao said in a statement.
Redfin estimates that, in August, the typical U.S. home sold for around $420,000, while NAR data puts that figure at $413,500—roughly the same ballpark.
There is some good news for homebuyers, however, as an Oct. 26 report from Redfin shows that new listings of homes for sale rose 0.3 percent year-over-year in the first few weeks of October. While that’s a small increase, it’s the first since July 2022 and is sure to be welcome by prospective buyers.
“Some people are selling right now because they’re concerned home values will go down, though that’s definitely not a foregone conclusion,” Ali Mafi, a Redfin Premier agent in San Francisco, said in a statement.
Back in 2020, the benchmark interest rate set by the Federal Reserve was near zero.
But soaring inflation would prompt the Fed to embark on its fastest pace of raising rates in decades, with the Fed funds rate now sitting at between 5.25 and 5.5 percent.
Mortgage Rates Soar
The average rate for a benchmark 30-year mortgage recently climbed to 8 percent, according to Mortgage News Daily, which uses data from multiple lenders from across the country to determine the current average loan rate on a daily basis. This rate is the highest in 23 years.With rates at multi-decade highs, mortgage application demand has stalled.
“Ten-year Treasury yields climbed higher last week, as global investors remained concerned about the prospect for higher-for-longer rates and burgeoning fiscal deficits,” Joel Kan, MBA’s deputy chief economist, said in a statement
“Mortgage activity continued to stall, with applications dipping to the slowest weekly pace since 1995. These higher mortgage rates are keeping prospective homebuyers out of the market and continue to suppress refinance activity,” he added.
Mortgage rates were around 3 percent just two years ago. Initially, they rose on the back of the Fed’s rate hikes, but more recently they’ve been pushed higher by bond market activity.
The yield on the benchmark 10-year Treasury note, which is heavily influential in setting mortgage rates, has been hovering at around 4.9 percent, though it recently broke above 5 percent—the highest level since 2007.
Experts say borrowing costs look unlikely to retreat in the near term, unless a sudden directional shift takes place in bond markets.
