Housing affordability hit a 33-year low in June, according to NAR data. But an increase in inventory and stabilizing mortgage rates may stem the tide.

The average monthly mortgage payment jumped 54% year over year in June while the median household income rose only 5.8%, according to the National Association of REALTORS®’ Housing Affordability Index. As home affordability weakened and the median home price shot to a record $413,800 in June, NAR’s index fell to its lowest reading in 33 years. “Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers,” NAR Chief Economist Lawrence Yun said recently.

Housing affordability “dramatically tumbled” in the second quarter amid rising mortgage rates and climbing home prices, NAR data shows. Monthly mortgage payments on a typical existing single-family home surged by nearly a third compared to the first quarter and by half compared to a year earlier. The 30-year fixed-rate mortgage has nearly doubled in that time. Although rates stabilized somewhat this month, they remain significantly higher than a year ago.

The average monthly mortgage payment rose to $1,944 in June from $1,265 a year earlier—a $679 difference, NAR notes. The annual mortgage payment as a percentage of income rose to 25.4%; most financial experts consider housing payments that exceed 25% of income to be unaffordable. “Monthly mortgage payments have soared compared to last year, and rising home prices are not helping affordability conditions,” Michael Hyman, a research data specialist at NAR, notes on the association’s Economists’ Outlook blog. “One good sign for the housing market is a welcome increase in the supply of inventory. Another is that rates recently have cooled, slowing the pace of growing monthly mortgage payments.”

Housing affordability posted double-digit declines in June compared to a year ago in all four major regions of the U.S. The Midwest was the most affordable region, with a median household income of $90,650 but a qualifying income of $68,496 needed to buy a median-priced home in the area. On the other hand, the least affordable region continues to be the West, where the median family income was $98,498 but a qualifying income of $141,552 was needed to purchase a median-priced home. This marks the fourth consecutive month the Western region posted a reading on NAR’s affordability index below 100, which means a family earning the median income in the region can’t afford a median-priced home.

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Pending home sales in July dropped nearly 20% year over year as the housing market continues to slow. But a turnaround is in sight, says Lawrence Yun.

Home buyers continue to recoil from higher mortgage rates and home prices, with pending home sales in July plummeting nearly 20% year over year, according to data from the National Association of REALTORS® released Wednesday. Though summertime is traditionally busy for the real estate market, contract signings across all regions of the country were down by double-digit percentages annually, the data shows. The West has seen the most market contraction, with pending home sales down 30%.

Pending home sales have fallen in eight of the last nine months as the market retreats from its pandemic highs. Still, NAR Chief Economist Lawrence Yun says a turnaround is likely. “In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” he says. “This month’s very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at the lower price points is hindering transaction activity.”

Affordability is taking a big hit, too, plunging in June to its lowest level since 1989, NAR reports. Rising mortgage rates have made home loans more expensive, adding to the cost of homeownership. The typical monthly mortgage payment was nearly $2,000 in June, up 54%—or $679—compared to just one year ago. “Home prices are still rising by double-digit percentages year over year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023,” Yun says. “With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year.”

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If borrowing costs get just a little higher, the average household may be blocked from homeownership, warns an NAR economist.

Mortgage rates continued inching up this week, nearing a threshold that would bring the average American household to a financial tipping point, warns Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®.

The 30-year fixed-rate mortgage jumped to an average of 5.66%, Freddie Mac reported Thursday. A 5.7% mortgage rate would force the typical household to spend over 25% of its annual income on a median-priced home, Evangelou notes on the Economists’ Outlook blog. Most financial experts consider homeowners to be “house burdened” at that level.

There’s a strong likelihood that mortgage rates move even higher, Evangelou writes, noting that the recent rise in the 10-year Treasury yield is influencing borrowing costs. Mortgage rates are nearly double what they were a year ago.

However, relief may be on the horizon for buyers. Fannie Mae predicted this week that the 30-year fixed-rate mortgage will drop to an average of 4.5% in 2023. Still, economists say home buyers who can afford to purchase now are better off moving forward rather than waiting for lower mortgage rates. Even if borrowing costs drop next year, high home prices likely will remain a challenge, Keith Gumbinger, vice president of the research firm HSH, recently told CNBC.

Freddie Mac reported the following national averages with mortgage rates for the week ending Sept. 1:

• 30-year fixed-rate mortgages: averaged 5.66%, with an average 0.8 point, increasing from last week’s 5.55% average. Last year at this time, 30-year rates averaged 2.87%.
• 15-year fixed-rate mortgages: averaged 4.98%, with an average 0.8 point, rising from last week’s 4.85% average. A year ago, 15-year rates averaged 2.18%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.51%, with an average 0.4 point, increasing from last week’s 4.36% average. A year ago, 5-year ARMs averaged 2.43%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

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Borrowers stand to save thousands by gathering multiple quotes from lenders.

As mortgage rates surge and remain volatile, it’s becoming increasingly necessary for home buyers to shop around for a loan to find savings. According to Freddie Mac, borrowers potentially could save an average of $1,500 over the life of a loan by gathering one additional rate quote from a lender. And borrowers could save even more by gathering five different quotes from lenders—up to $3,000, Freddie Mac research shows.

Every dollar may help as housing affordability reaches a critical threshold. The typical U.S. household will no longer be able to afford a median-priced home when mortgage rates reach 5.7%, Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, predicted last week.

This week, the 30-year fixed-rate mortgage pushed to an average of 5.89%. That means the typical household must now spend more than 25% of their income on mortgage payments, a level most financial experts consider to be cost-burdened, Evangelou notes.

“Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy due to elevated inflation,” says Sam Khater, Freddie Mac’s chief economist. “Not only are mortgage rates rising but the dispersion of rates has increased, suggesting that borrowers can meaningfully benefit from shopping around for a better rate.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 8:

• 30-year fixed-rate mortgages: averaged 5.89%, with an average 0.7 point, rising from last week’s 5.66% average. Last year at this time, 30-year rates averaged 2.88%.
• 15-year fixed-rate mortgages: averaged 5.16%, with an average 0.8 point, increasing from last week’s 4.98% average. A year ago, 15-year rates averaged 2.19%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.64%, with an average 0.4 point, increasing from last week’s 4.51% average. A year ago, 5-year ARMs averaged 2.42%.

Freddie Mac reports commitment rates with average points to better reflect the total upfront cost of obtaining the mortgage.

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Reprinted with permission

Monthly mortgage payments are 60% higher than a year ago, according to NAR. Buyers can save by shopping around for different types of loans.

The interest rate for the 30-year fixed-rate mortgage crossed a major threshold this week, hitting 6.02%—the first time it has broken 6% since 2008, Freddie Mac reported Thursday. Volatile mortgage rates are sending shockwaves through the housing market and unnerving home buyers who are concerned about shrinking affordability. The 30-year loan averaged just 2.86% a year ago.

The increased rates have pushed monthly mortgage payments 60% higher year over year, says Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®. “There is no doubt that these higher rates hurt housing affordability,” Evangelou writes on the association’s blog. Mortgage rates already marked a grim milestone when they hit 5.7%, a rate that puts a median-priced home out of reach for the typical household.

Mortgage rates this week continued to rise alongside higher-than-expected inflation numbers, adds Sam Khater, Freddie Mac’s chief economist. “Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate,” he says. “This indicates that while home price declines will likely continue, they should not be large.”

Further, homeownership may offer a hedge against inflation, Evangelou says. Fixed-rate mortgages are not adjusted to inflation, and home buyers’ monthly payments will remain the same during the loan period. She says that’s important at a time when rents are rising to their highest level in nearly four decades.

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 15:

30-year fixed-rate mortgages: averaged 6.02%, with an average 0.8 point, increasing from last week’s 5.89% average. Last year at this time, 30-year rates averaged 2.86%.

15-year fixed-rate mortgages: averaged 5.21%, with an average 0.9 point, rising from last week’s 5.16% average. A year ago, 15-year rates averaged 2.12%.

5-year hybrid adjustable-rate mortgages: averaged 4.93%, with an average 0.2 point, increasing from last week’s 4.64% average. A year ago, 5-year ARMs averaged 2.51%.

Trying a Different Mortgage Option May Offer Savings

As the average for the 30-year fixed-rate mortgage rises, more home buyers are reaching for adjustable-rate mortgages or 15-year fixed-rate mortgages to lock in a lower rate. A new survey from LendingTree shows that 15-year mortgages could save home buyers an average of $214,899 in interest over the lifetime of their loan compared to 30-year mortgages. Homeowners in California, Hawaii, Washington, Massachusetts and New York stand to save the most from 15-year fixed-rate mortgages, the study shows.

“Borrowers should always keep in mind that different loan types exist and that one size doesn’t necessarily fit all,” says Jacob Channel, LendingTree’s senior economist. “For example, while a 15-year fixed mortgage may be the best option for some, it isn’t always the best option for everyone. Borrowers shouldn’t feel discouraged if they can’t afford a mortgage with a shorter repayment term. Ultimately, while factors like how much interest a loan charges or how long it will take to be paid off are important, they aren’t as important as whether or not that loan is affordable to a borrower.”

“Borrowers should always keep in mind that different loan types exist and that one size doesn’t necessarily fit all,” says Jacob Channel, LendingTree’s senior economist. “For example, while a 15-year fixed mortgage may be the best option for some, it isn’t always the best option for everyone. Borrowers shouldn’t feel discouraged if they can’t afford a mortgage with a shorter repayment term. Ultimately, while factors like how much interest a loan charges or how long it will take to be paid off are important, they aren’t as important as whether or not that loan is affordable to a borrower.”

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Still, homeowners are faring well, with property prices surging despite a pullback in buyer demand, says NAR’s chief economist.

Existing-home sales slipped further in August as economists blame the “housing recession” mostly on higher mortgage rates, though home prices continue rising, according to newly released data from the National Association of REALTORS®. But while existing-home sales, which reflect transactions for single-family homes, townhomes, condos, and co-ops, fell a modest 0.4% month over month in August, they’re down about 20% compared to a year ago.

“The softness in home sales reflects this year’s escalating mortgage rates,” says NAR Chief Economist Lawrence Yun. “Nonetheless, homeowners are doing well, with near-nonexistent distressed property sales, and home prices are still higher than a year ago.”

Home prices rose 7.7% in August compared to a year ago, according to NAR. The median existing-home sales price for all housing types increased to $389,500, with every major region of the U.S. posting hikes in home prices last month. But August did mark the second consecutive month in which the median sales price dropped from its record high of $413,800 from June. NAR’s report notes that follows a typical seasonal drop in home prices after they peak in early summer.

Here are additional key indicators from NAR’s August housing report:

• Days on the market: Eighty-one percent of homes were on the market for less than a month. Properties typically remained on the market for 16 days, down from 17 days a year ago.
• Housing inventory: Fell 1.5% month over month but is unchanged from last year’s levels. Unsold inventory is at a 3.2-month supply at the current sales pace. “Inventory will remain tight in the coming months and even for the next couple of years,” Yun says. “Some homeowners are unwilling to trade up or trade down after locking in historically low mortgage rates in recent years, increasing the need for more new-home construction to boost supply.”

• All-cash sales: Accounted for about a quarter of transactions, up slightly from 22% a year ago. Individual investors and second-home buyers tend to make up the biggest bulk of cash sales. They purchased 16% of homes, which is up from 14% a year ago.
• First-time buyers: Comprised 29% of sales, holding steady from last month and a year ago.
• Distressed sales: Foreclosures and short sales comprised just 1% of sales, continuing a historically low level.

Regional Snapshot

Existing-home sales dropped on an annual basis in all four major regions of the U.S. in August. But month-over-month figures varied.

• Northeast: Existing-home sales rose 1.6% month over month, reaching an annual rate of 630,000. However, sales in the Northeast are down 13.7% from a year ago. Median price: $413,200, a 1.5% increase from August 2021.
• Midwest: Sales dropped 3.3% compared to the prior month, reaching an annual rate of 1.16 million. That’s down nearly 16% from August 2021. Median price: $287,900, up 6.6% from last year.
• South: Existing-home sales held steady month over month but were down 19.3% from a year ago. Sales reached an annual rate of 2.13 million. Median price: $356,000, an increase of 12.4% from August 2021.
• West: Sales rose 1.1% month over month but are down 29% compared to a year ago. Sales reached an annual rate of 880,000. Median price: $602,900, a 7.1% increase from last year.

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