https://www.wsj.com/articles/u-s-housing-affordability-in-ju…
**U.S. Housing Affordability in June Was the Worst Since 1989**
**Record-high home prices combined with rising mortgage rates to push more buyers out of the market**
**By Nicole Friedman, The Wall Street Journal, Aug. 12, 2022**
**It was more expensive to buy a U.S. home in June than it has been for any month in more than three decades, as record-high home prices collided with a surge in mortgage rates.**
**The National Association of Realtors’ housing-affordability index, which factors in family incomes, mortgage rates and the sales price for existing single-family homes, fell to 98.5 in June, the association said Friday. That marked the lowest level since June 1989, when the index stood at 98.3....**
**The drop in affordability makes it especially hard for first-time buyers to enter the market and access the main path for the U.S. middle class to build wealth. ... The median existing single-family sales price in June was $423,300, while the average mortgage rate stood at 5.6% and median family income was $91,952, according to NAR....The typical monthly mortgage payment rose to $1,944 in June, NAR said, up from $1,297 in January and $1,265 in June 2021, assuming a 30-year fixed-rate mortgage and a 20% down payment....** [end quote]
These charts tell the story.
30-Year Fixed Rate Mortgage Average in the United States is 5.22%, up from 2.77% in September 2021.
https://fred.stlouisfed.org/series/MORTGAGE30US
S&P/Case-Shiller U.S. National Home Price Index is 306, up from 213 in February 2020.
https://fred.stlouisfed.org/series/CSUSHPINSA
Existing Home Sales are 5.2 million in June 2022, down from 6.5 million in January 2022.
https://fred.stlouisfed.org/series/EXHOSLUSM495S
The WSJ article doesn’t mention that many families are being outbid by private equity for homes as well as apartment complexes and mobile home parks.
If families can’t afford to buy homes they are forced into apartments with fast-rising rents. But if they buy a home in this high-price, high-mortgage rate environment the housing payments will absorb a big chunk of their disposable income. The macro impact will be to slow the economy since other goods and services will be crowded out by housing costs.
At some point, housing prices will start to fall since people won’t be able to afford them. But that won’t happen until supply and demand come into balance.
Wendy