Being able to afford a home continues to be a challenge for most American households. According to the latest Housing Affordability Index released by the National Association of Realtors (NAR), housing affordability declined nationwide in June, both on a monthly and yearly basis. The monthly mortgage payment rose 6.6% (a $135 increase compared to May), while the median price of single-family homes increased by 3.6%. In year-over-year comparisons, the monthly mortgage payment climbed 12.1%, as the effective 30-year fixed mortgage rate increased to 6.79% this June compared to 5.60% one year ago, while the median family income rose by 4.2%.
Consequently, the national Housing Affordability Index fell to 87.8 in June from 93.7 in May 2023 and 94.5 in June 2022. According to the NAR, an index below 100 indicates that a family with a median income had less than the income required to afford a median-priced home, meaning that the mortgage payment (principal and interest) amounts to 25% or less of the family’s income. This measure does not include the additional expenses linked to homeownership, such as mortgage insurance, home insurance, taxes, and costs for property maintenance. In addition, the NAR reported that median home prices rose 8.5% compared to the previous quarter, although they fell slightly by 2.4% in yearly comparisons to $402,600.
Housing Shortage Woes
The reason behind the stubbornly high home prices that remain seemingly immune to the Fed’s ongoing efforts to curb inflation is the endemic housing shortage the United States has faced for the past ten years.
“Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%. The best way to bring housing inflation down and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units,” said Robert Dietz, chief economist at the National Association of Home Builders (NAHB).
The NAHB reported that New Home Starts in the US rose by 3.86% month-over-month to a seasonally-adjusted annualized rate of 1.452 million in July 2023, above market expectations of 1.448 million. However, it is still not enough.
“The Federal Reserve shouldn’t have to fight inflation on its own, as the central bank’s ability to address rising housing costs is extremely limited because shelter cost increases are driven by a lack of affordable supply and increasing development costs,” said NAHB Chairman Alicia Huey. “A focus on policies that will enable builders to construct more homes will help tame inflation by working to achieve a healthy supply-demand balance in the marketplace, move housing and the economy to higher ground, and ease the nation’s housing affordability crisis.”
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
