A new report released by the National Association of Realtors (NAR) has found that home affordability in the US has reached its lowest level since 2006.
There’s been a downward trend in terms of home affordability for some time; however, this has accelerated in the last 12 months. Many American consumers that could afford to buy a home last year are finding they’re no longer able to due to surging house prices and mortgage rates.
The average mortgage rate has nearly doubled since January, and US house prices grew 17.5% year-on-year in March, following an increase of 17.4% YoY in the previous quarter.
In its report, the NAR points out that home affordability has reached its lowest level since 2006, the peak year of the US housing bubble.
The organization said its housing affordability index – which incorporates median existing-home prices, median family incomes, and average mortgage rates – fell to 102.5 in May, the lowest since it hit 100.5 in July 2006.
How will this affect the housing market?
After more than two years of the COVID-19 pandemic, there have been significant changes in the global housing market. Consumers have faced financial changes like loss of income or receiving extra government support.
In addition to this, the housing market was almost entirely closed for part of the pandemic, with transactions, mortgage lending, and housebuilding coming to a halt in many countries. However, consumer confidence eventually rebounded, causing pressure on the housing market.
Rising prices, along with higher inflation, have now made housing less affordable. But how will this affect the housing market?
At the moment, there’s no clear consensus among the experts as to whether sales will fall and pull down prices, especially as home construction is still slow.
In some regions, the market has started to slow down with fewer buyers willing to take on large mortgage repayments. This could mean house prices falling as interest rates climb.