US housing affordability worsened to a fresh record low in August as Americans continue to bend under the weight of soaring mortgage rates and sticky prices.
The National Association of Realtors index decreased to 91.7 in August, marking the lowest level in data back to 1989, according to data out Friday. A level below 100 means a household with a median income doesn’t earn enough to qualify for a mortgage on a median-priced home.
The typical family spent 27.3% of their income on their annual mortgage payment. Qualifying income for a mortgage, based on a 20% down payment, was $107,232 in August — marking the third straight six-figure reading. Affordability deteriorated in all four regions.
“The highest mortgage rate in two decades is detrimentally limiting the homeownership opportunity for many middle-class households,” Lawrence Yun, NAR’s chief economist, said in an emailed statement. “Unintentionally, no doubt, the Federal Reserve is widening social inequality with only the high-income families — earning above $100,000 — able to comfortably buy a home.”
A series of interest-rate hikes by the Fed — and more recently a surge in bond yields — has skyrocketed mortgage rates to the highest level in more than two decades, hurting both housing supply and demand.
Not only is that pushing prospective buyers to the sidelines, but it’s also discouraging homeowners from giving up their low rates to move. That’s putting a lid on inventory and keeping prices elevated.
The latest survey of consumers by the University of Michigan showed that 62% said now was a bad time to buy a home because of higher borrowing costs. That’s close to the highest share since 1982, according to data out Friday.
Affordability has likely worsened since the August data as mortgage rates have climbed even higher in recent weeks.
The NAR, along with Mortgage Bankers Association and National Association of Home Builders, wrote a letter this week to Fed Chair Jerome Powell to refrain from raising interest rates any further.
It’s not clear whether policymakers will heed their request. At their meeting last month, a majority of officials saw a need for one more interest-rate hike this year. A strong inflation report Thursday likely keeps that option on the table, though the selloff in Treasuries may obviate the need for more.
At a minimum, interest rates are poised to elevated for some time until central bankers are convinced that inflation is sustainably on a downward path.
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