Thu. Sep 21st, 2023
    Housing Affordability Remains a Challenge for Homebuyers

    The past year has seen a 13% increase in the median monthly payment for homes, making affordability a major concern for homebuyers, according to analysts at Morgan Stanley. This represents the slowest pace of affordability deterioration since December 2021. The relief that lower mortgage rates were providing to affordability has largely been undone, resulting in continued pressure on affordability and preventing a significant increase in existing home sales volumes. This tightens inventory, creating room for growth in new home sales.

    Despite affordability conditions remaining unchanged over the past six months, recent increases in mortgage rates have reversed this trend. The average rate on the 30-year fixed mortgage reached its highest level in over two decades, surpassing 7%. Higher costs of borrowing have had an impact on inventory, with existing home sales down 23% compared to the first half of 2022. Homeowners are hesitant to sell their homes when they financed at lower rates, leading to decreased supply and straining affordability.

    However, home values have held steady, with home prices experiencing a fourth consecutive month of increase, as reported by the Case-Shiller home price index for May. Nonetheless, there has been a 0.5% annual decline in the national index.

    The mismatch between supply and demand has caught the attention of homebuilders. Housing starts for both single- and multi-family units have risen, with new home sales posting a 25% year-over-year increase. However, sales volume is expected to finish the first half of the year down by 3% compared to the same period in 2022.

    Consumer attitudes towards buying homes have improved but have remained stagnant for the last eight months, despite being better than the lows seen in November and December of last year.

    In summary, housing affordability continues to be a challenge for homebuyers, with increasing monthly payments and higher mortgage rates impacting affordability. This has led to a decrease in existing home sales and a tightening of inventory. While home prices have held steady, the supply-demand mismatch remains a concern. New home sales have shown resilience, but it is not indicative of broader strength in housing demand.