Mortgage rates jump to 8% is a housing affordability challenge that can be overcome, but it won’t be easy and the homebuyer squeeze may last a long time.
With the average 30-year fixed mortgage rate around 8%, the highest since 2000, home affordability is at its worst level since at least 1989.
The median family was already $9,000 short in August of the income needed to buy the median existing home, the association says, and the recent surge in rates since has moved another five million U.S. families below the qualification standard for a $400,000 loan, according to John Burns Real Estate Consulting. At 3% mortgage rates, 50 million households could get a loan that size. Now it's 22 million.
The National Association of Realtors measures affordability through its 34-year old Housing Affordability Index, or HAI. It calculates how much income the median family has to have to afford the median existing home, which, right now, costs about $413,000, according to NAR. If the index equals 100, it means the median family has enough income to buy that house with a 20% down payment. The index assumes the family wants to pay 25% of its income toward principal and interest.
Aside from the raw numbers, the direction of monetary policy will keep incomes from fixing the housing problem, said Doug Duncan, chief economist at Fannie Mae. The Federal Reserve has been raising interest rates precisely because it thinks wages have been growing fast enough to reinforce post-Covid inflation, Duncan said. Year-over-year wage gains slipped to 3.4% in the most recent job-market data, he said, and the Fed would like wage growth to be lower.
The builders are kind of a problem, said Redfin chief economist Daryl Fairweather. They've been boosting profits this year, andtracking the industry is up 41%, but Fairweather said they've barely begun to address a long-term housing shortage Freddie Mac estimated at 3.8 million homes before the pandemic, a number that has likely grown since.
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