Some Eye Potential Relief for Housing Affordability

A more affordable housing market will be welcome news for buyers currently sitting on the sidelines, according to Mark Fleming, chief economist, First American Financial Corporation (FAFC).

“Given the large loss of affordability buyers experienced this year, a possible improvement next year will be a welcome relief for potential buyers,” Fleming said in prepared remarks.

Trending data that measures housing affordability has had a rough go on consumers this year, according to FAFC’s Real House Price Index (RHPI). For October, the index reflected a 68% year-over-year spike due to higher interest rates.

The RHPI measures the price changes of single-family properties throughout the US adjusted for the impact of income and interest rate changes on consumer house-buying power over time at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

Rising Income Doesn’t Compensate for Rising Housing Prices

“Even though household income increased 3.4 percent since October 2021 and contributed positively to consumer house-buying power, it was not enough to offset the affordability loss from the dramatic surge in mortgage rates and fast-rising nominal prices,” Fleming said.

“As affordability wanes and prompts buyers to pull back from the market, nominal house price appreciation has slowed.

Fleming forecasts for 2023 that income is likely to flatten, mortgage rates are expected to stabilize, and nominal house prices should continue to slow, and decline in some markets, creating a shift toward a buyers’ market.

Fleming added, “If mortgage rates fall to 6 percent by the end of 2023 as the industry average predicts, household incomes remain flat on an annual basis due to a narrowing labor supply-demand gap and slowing labor market, and nominal house prices decline by 0.3 percent annually as the industry forecasts, then affordability as measured by the RHPI will improve by 9 percent by the end of next year compared with October 2022.”

CoreLogic Sees 60% YoY Spike in Monthly Payments

CoreLogic reported that interest rates led to a nearly 60% jump in monthly payments, eating into housing affordability as monthly mortgage payments jumped to the highest levels in 15 years.

Rising inflation has exacerbated this cost situation, leaving many wondering if they can afford a mortgage, CoreLogic said.

Today’s rates for 30-year fixed mortgages “are still higher than they have been in the memories of most young homeowners.”

Over the last year, home prices increased by 10.1% year-over-year in October, something CoreLogic tracked as independent of interest rates, which spiked to over 7% in mid-November this year.

“Increasing mortgage rates and high home prices have markedly eroded homebuyer affordability in 2022,” Selma Hepp, interim lead of the Office of the Chief Economist at CoreLogic, said in a release.

“As a result of weakened buyer purchase power, and in light of rising costs across goods and services, consumer sentiment has fallen to an all-time low, and homebuyers have stepped out of the market. Unfortunately, affordability constraints are weighing more heavily on first-time homebuyers and buyers with limited down payments who were likely priced out of the burgeoning housing market during the last two years.”