Housing Market Cools As Wages Fail To Keep Pace With Inflation

Rising inflation is translating into changing homebuyer preferences and budgets, as rising inflation increasing erodes consumers’ purchasing power.

The average consumer is spending nearly $500 more a week for monthly items other than housing, according to the National Association of Realtors, but wages haven’t kept pace, rising by just $212 per month.

Meanwhile, home-price appreciation was greater than weekly wage growth in the first quarter of 2022 in 81% of the US counties analyzed by data firm ATTOM in the report, led by Los Angeles County, CA; Harris County (Houston), TX; Maricopa County (Phoenix), AZ; San Diego County, CA, and Orange County, CA (outside Los Angeles).

“If we take the present value by applying a mortgage rate of 4.72% over 30 years, this means that the average consumer will be looking for a home that is $41,793 cheaper,” says NAR’s Scholastica Gay Cororaton.  What’s more, the supply of homes below the $250,000 mark is making it even more difficult for would-be buyers shopping at that price point, which represented just under 30% of existing home sales in February 2022.

NAR’s chief economist Lawrence Yun predicts housing demand will decrease in 2022 to 10% thanks to rising inflation and higher mortgage rates.  March was a hot month for the market, with homes selling at their fastest pace and for more above list price than in any other March Redfin analyzed in its monthly reporting on the sector.

But seasonally adjusted home sales fell 4% month over month and 8% year over year in March as mortgage rate increased and higher prices sidelined buyers—and the slowdown is expected to continue.

“Although pricey coastal markets began showing early signs of a slowdown in late March, nationwide sales data for the full month reflects the hottest March market on record, since homes that sold last month mostly went under contract in February,” said Redfin chief economist Daryl Fairweather. “We expect the combination of surging mortgage rates and record-high home prices to cause more homebuyers to drop out of the market. Unfortunately, homeowners are turning their back on the market too. Instead of being motivated to list before prices weaken, potential home sellers may be choosing to wait-out the impending market cooldown.”

 Pricing is expected to increase another 5% thanks to tight supply conditions, however, per the NAR analysis.

Median-priced single-family homes were less affordable in the first quarter compared to historical averages in 79% of counties across the nation with enough data to analyze, according to ATTOM.

“It’s certainly no surprise that affordability is more challenging today for prospective homebuyers than it was a year ago,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “Historically low mortgage rates and higher wages helped offset rising home prices over the past few years, but as home prices continue to soar and interest rates approach five percent on a 30-year fixed rate loan, more consumers are going to struggle to find a property they can comfortably afford.”