Soaring home prices and mortgage rates, combined with a lack of supply, have dampened the hopes of many would-be home buyers, and the outlook remains bleak.
Just ask Beth Ann Bovino, chief North American economist at S&P Global Ratings.
“We think a typical American first-time home buyer now finds it too expensive to own a home, based on our estimates of how long it will take to save a down payment and how much the monthly payments as a percentage of income climb,” she commented. wrote in.
“By the fourth quarter of 2022, it would take 11.3 years for a first-time home buyer with a median income to save a 10% deposit.”
And “it would take this homeowner 22.6 years to save on a 20 percent down payment,” Bovino said. “Both are more than double the five and 10.6 years before the pandemic, respectively.”
As for affordability, “Assuming a 10% down payment, for the typical first-time home buyer, mortgage payments as a percentage of income could exceed 25% in the second quarter of 2022,” she said.
By the fourth quarter of 2022, the figure “will worsen to 28% – the highest level since the first quarter of 2007 [before] Financial crisis – house prices and mortgage rates skyrocketed,” Bovino said.
The National Association of Realtors defines “affordable” as a mortgage that does not exceed 25% of income.
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Looking at the impact on different wealth levels, Bovino said the bottom 40 percent of low-income households have been pushed out of the housing market.
“By the first quarter of 2022, middle-income first-time homebuyers will not be able to afford their monthly mortgages, and by the fourth quarter of 2025, 60% of households will be unable to afford housing.”
Mortgage Application, Home Sales Slideshow
No wonder mortgage applications fell 6.3% in the week ended July 15 from a week earlier, to the lowest level since 2000, according to the Mortgage Bankers Association.
“A weak economic outlook, high inflation and ongoing affordability challenges are weighing on buyer demand,” MBA economist Joel Kan said in comments accompanying the report.
“The recent decline in purchase applications has been linked to a slowdown in residential construction activity due to reduced buyer traffic, ongoing building material shortages and rising costs.”
Meanwhile, existing-home sales fell to a two-year low of 5.12 million in June, according to the National Association of Realtors. This is the fifth consecutive month of declines. Sales fell 5.4% from May and 14.2% from a year earlier.
It’s the same old story. “Declining housing affordability continues to weigh on potential home buyers,” NAR chief economist Lawrence Yun said in comments accompanying the report. “Mortgage rates and house prices have risen too much in a short period of time.”
As for mortgage rates, the average rate on a 30-year fixed-rate mortgage was 5.51% as of July 14, up from 2.88% a year ago, according to Freddie Mac.
On the price front, the median existing-home sale price hit $416,000 in June, up 13.4% year over year, according to NAR.