Housing affordability plummets to lowest level since 2007 as prices jump
Housing affordability in the United States has taken a hit once again as home prices continue to surge nationwide, according to recent data from real estate analytics firm ATTOM. The findings reveal that the median price of a single-family house skyrocketed to $350,000 in the second quarter, marking a significant 10% increase from the previous quarter and one of the largest jumps in the past decade.
Furthermore, this price is now 2% higher than last year’s peak, indicating that even the spike in mortgage rates failed to cool down the demand among prospective homebuyers. However, the surge in prices has led to a higher portion of average wages being required to own a home, with the debt-to-income ratio reaching 33% from April to June. This represents the highest level since 2007, making the current housing market the least affordable for Americans in nearly two decades.
The lack of affordability is not limited to specific areas but is widespread across the country. In about 98% of counties, prices have risen compared to historical averages, exacerbating the challenges faced by potential homebuyers.
Rob Barber, CEO of ATTOM, commented on the situation, saying, “The U.S. housing market has done an about-face following a downturn that threatened to usher in an extended period of flat or falling prices. With that has come another blow to how much house the average worker around the country can afford. Whether this is just a temporary blip amid this year’s peak buying season or a sign of another extended price surge is anyone’s guess.”
One of the contributing factors to the lack of affordability is the Federal Reserve’s aggressive interest-rate hike campaign, which caused mortgage rates to soar above 7% for the first time in nearly two decades. Despite rates being slow to retreat, hovering around 6.71% for the popular 30-year fixed mortgage, home prices have remained relatively stagnant. This is partly due to the limited availability of homes for sale, as sellers who locked in low mortgage rates before the pandemic have been reluctant to sell, leaving prospective buyers with limited options.
A recent report from Realtor.com revealed that the number of homes available on the market in June was down by more than 47% compared to pre-pandemic levels in early 2020.
Chief economist Sam Khater of Freddie Mac acknowledged the impact of rising mortgage rates on homebuyers, stating, “Mortgage rates have hovered in the 6 [percent] to 7 percent range for over six months and, despite affordability headwinds, homebuyers have adjusted and driven new home sales to its highest level in more than a year.”
As the housing market faces ongoing challenges, it remains to be seen whether this trend of declining affordability is a temporary blip or a sign of an extended period of price surges.
