Title: Homebuyers Return, but Housing Affordability Remains a Challenge
Subtitle: Rising Mortgage Rates and Home Prices Continue to Impact Affordability
Date: June 19, 2023
As the spring season brings a renewed interest in homebuying, many potential buyers are finding that housing affordability remains a significant challenge. Despite the increase in buyer activity, experts suggest that the current conditions are far from normal affordability levels.
According to Chris Porter, chief demographer at John Burns Research and Consulting, people are still paying a larger portion of their income towards housing than in previous years. To address this issue, Porter highlights three potential solutions: raising incomes, lowering mortgage rates, or reducing home prices.
While incomes have been growing steadily, the other two factors, mortgage rates, and home prices, are causing concerns among price-conscious buyers. Recent data from the Mortgage Bankers Association (MBA) shows that a slight dip in mortgage rates led to a significant increase in purchase applications. However, rates have remained relatively high, fluctuating between 6% and 7% throughout the year.
Although the Federal Reserve has paused its aggressive rate hike campaign due to cooling inflation, experts believe that mortgage rates will likely remain elevated for the foreseeable future. Porter suggests that rates are unlikely to return to the historically low levels seen in previous years.
To mitigate the impact of higher rates, homebuilders have been offering buydowns to buyers who require a lower rate. Additionally, the market has seen an increase in new construction, with builders representing a larger share of available inventory. The National Association of Home Builders reports that 33% of homes on the market are new builds, compared to the usual 12.7% between 2000 and 2019.
Despite these efforts, Porter estimates that at least 17.1 million new homes need to be built over the next decade to meet rising demand. However, construction cannot happen overnight, and Porter predicts a slight slowdown in single-family construction in the coming years.
Another challenge contributing to the affordability issue is the lack of previously owned homes available for sale. Homeowners are reluctant to list their properties and give up their existing low mortgage rates. This shortage of resale supply has created a floor on how far prices could fall, at least temporarily.
Recent data from Altos Research shows that the median price of a single-family home increased to $454,900, making homeownership unaffordable for many potential buyers. The prices of newly pending home sales also experienced an uptick, further exacerbating the affordability challenge.
Until housing affordability improves, experts anticipate a slowdown in household formation as potential buyers wait for more favorable conditions. The current market dynamics require a combination of solutions, including raising incomes, lowering mortgage rates, and addressing the supply shortage, to make housing more affordable for aspiring homeowners.
Sources:
1. “The Impact of Developer Infrastructure Charges on Housing” – Lyndall Bryant, 2015
2. Yahoo Finance – “Many homebuyers reemerged this spring after going dormant during the winter. But that doesn’t mean housing is affordable again.” – Gabriella Cruz-Martinez, June 19, 2023
a borrower is unsure whether to go with a fixed-rate or adjustable-rate loan
Ebuyers are exploring various options, such as adjustable-rate mortgages (ARMs). These mortgages offer lower initial rates, which can help buyers afford larger homes in the short term. However, there is a level of uncertainty associated with ARMs, as rates can adjust after an initial fixed period.
Another factor contributing to the affordability challenge is the increase in home prices. CoreLogic’s research indicates that as housing demand declined, sales activity slowed down. This trend led to decelerating home prices, but they are still higher compared to previous years.
In light of these challenges, potential homebuyers are advised to carefully consider their financial situation and weigh the costs and benefits of homeownership. It may be necessary to adjust expectations, consider different neighborhoods, or opt for a smaller home to make homeownership more affordable.
In conclusion, while there has been a bounce back in the number of homebuyers, housing affordability remains a challenge due to rising mortgage rates and home prices. Experts suggest that addressing this issue will require a combination of raising incomes, lowering mortgage rates, and reducing home prices. Potential buyers are encouraged to seek alternative options like adjustable-rate mortgages and to carefully evaluate their financial situation to ensure affordability.
It’s disheartening to see that the issue of affordability is still a major challenge for homebuyers, even with the recent spring resurgence. It’s crucial for policymakers and real estate stakeholders to work together and find sustainable solutions that can make homeownership more accessible for everyone.
“Though spring has breathed new life into the housing market, the issue of affordability continues to pose a significant challenge for prospective homebuyers. With prices on the rise, it’s crucial for policymakers and industry leaders to reevaluate strategies and solutions to make housing more accessible for all.”