As any would-be homebuyer can tell you, purchasing a home does not come cheap these days. Between mortgage rates standing twice as high as they were in previous years and property prices remaining stubbornly elevated in most of the country due to the ongoing lack of inventory, mortgage payments for new buyers are at a record high.
According to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index–which measures how new monthly mortgage payments vary across time relative to income–homebuyer affordability declined 2.5% in May, bringing the national median mortgage payment from $2,112 in April to $2,165 in May. It is up $268 from one year ago, equal to a 14.1% increase. Nevada, Idaho, Arizona, California, and Florida stand out as the least affordable states, while Connecticut, West Virginia, Alaska, Louisiana, and Wyoming, are the most buyer-friendly.
Declining affordability is due to a combination of factors including rising loan amounts and mortgage rates and decreasing earnings. Although inflation has reduced significantly since its 40-year-high of 9.1% in June 2022, it remains higher than desired. The so-called core inflation, which excludes the more volatile prices of energy and food, has been particularly resistant to the Federal Reserve Bank’s efforts to bring inflation under a targeted 2% rate despite ten consecutive interest rate increases since March 2022. According to the latest survey issued by the Bureau of Labor Statistics, real average hourly earnings increased a mere 0.2%, seasonally adjusted, from May 2022 to May 2023. Although the low readings may be good news for the Fed, many hopeful homebuyers find themselves pushed to the sidelines.
An Ongoing Struggle
“Homebuyer affordability eroded further in May as prospective buyers continue to grapple with high interest rates and low housing inventory,” said Edward Seiler, MBA’s Associate Vice President, Housing Economics, and Executive Director of the Research Institute for Housing America. “While supply remains low, we do expect that inventory will pick up in the near term, which will provide more opportunities for borrowers to buy a home.”
The last statement may be optimistic. Current property owners are understandably hesitant to let go of their relatively affordable mortgages. They would rather adopt a wait-and-see attitude than put their property on the market without the certainty of finding suitable housing in their price range. As a result, the housing supply remains a meager three months in most of the country despite recent increases in the number of days spent on the market, a far cry from the five to six months required for a balanced market.
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.
