Homebuyers have taken a hit in recent years, with mortgage rates topping 8%, a rate that has not been seen since August 2000. Inflation, employment rates, consumer spending and demand for housing are some of the economic factors that have contributed to higher mortgage rates. And according to National Association of Realtors chief economist Lawrence Yun, it’s not going to get any better anytime soon.
“Mortgage rates will not go back to 3% – we’ll be lucky if we get back to 5,” said Yun while speaking to CNBC last week.
In today’s housing market, buyers on average have to make an annual income of at least $114,627 to afford a home, according to a recent Redfin report. Also, the average monthly mortgage payment for homebuyers in the United States is $2,866, which is a 20% increase compared to last year. Home affordability in the U.S. is the worst it's ever been since 1984.
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“In a homebuyer’s ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. But that’s not what’s happening now: Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates–and that’s propping up prices,” said Redfin economics research lead Chen Zhao in the report.
The National Association of Realtors’ data predicts that in order for home affordability to return to pre-inflated averages, rates need to fall to 3.55% if home prices are stable. If home prices grow 5%, rates need to decrease to 3.16%. If prices remain the same but incomes increase to 5%, rates need to decrease to 3.95%. Some economists are even predicting that the earliest homebuyers will see “normal” affordability levels in the housing market is 2026 or later.
In the midst of grim news for the housing market, there could be some light at the end of the tunnel. The Federal Reserve is expected to pause interest rate hikes in a Nov. 1 meeting, providing some relief to homebuyers as they face historical interest rate levels.
