HOUSING AFFORDABILITY HARDEST IN 33 YEARS, NAR SAYS

It is now harder to afford to buy and own a home than at any time in U.S. history, according to the housing affordability index published last week by the National Association of Realtors (NAR).

The NAR notched its index at 98.5 in June, higher than any time since June 1989, when the index stood at its last record height of 98.3.

The higher the number, the harder it is to pay for a house.

The index factors together average home sale prices, mortgage interest rates, and average family incomes.

Existing home sales have declined for five months straight, the NAR said, because prices remain high and inflation and interest rates are both on the rise.

However, the number of home sales is up, year over year, because there still are more ready buyers than there are homes for sale.

The price of existing homes has rocketed up 46 percent in the last three years, the NAR noted.

Still, homes remained relatively affordable because the U.S. Federal Reserve held interest rates near zero and bought hundreds of billions of dollars’ worth of mortgage-backed bonds.

The Fed has stopped buying mortgage bonds and began raising interest rates in March. Mortgage rates now hover above 5 percent, compared to 3.1 percent last December, with the average rate on 15 August reaching 5.22 percent, Nerdwallet reported.

Higher rates and inflation are likely to rein back home prices’ rate of increases as the year continues, analysts told The Wall Street Journal; some even predict slight price declines in a few markets.

However, since 2009 during the Great Recession, home construction has failed to keep pace with demand, which will prevent prices from falling precipitously, economists pointed out to The Wall Street Journal.

TREND FORECAST: The factors driving home prices higher will continue for several more months: materials and skilled labor will be in tight supply, land on which to build new houses is becoming more scarce, and homeowners will continue to sit tight until mortgage rates level off or fall so they can afford to buy a new home after selling their current one.

Despite what was called good inflation news from July, the U.S. Federal Reserve will continue to raise interest rates, elevating the cost of mortgages and making it harder for even more people to be able to qualify for a loan.

More broadly, the lack of affordable homes will lead a larger number of younger people to lose the hope of home ownership, making them more cynical and less invested in their future or the future of their country.

Comments (5)

The important aspect of home ownership is not the potential profit that most families enjoy. The important thing is this: it is a system of forced saving. Young people buy a home, they sign a 30-year mortgage, and they move in five years. They are just like everybody else. Few Americans stay in the same home more than about five years. So, the person takes whatever equity he has from selling his home, which in five years is probably not very much, and he uses this equity as a down payment on the next house. He keeps this up, half decade after half decade, and at the end of his life, he has some money saved. But the money is worth only a fraction of what it was when he bought the first house. He has also spent a lot of money in keeping these houses in good shape. Houses on average are sinkholes for money. People don’t keep track of how much money they are really spending, unless they are buying the home as an investment property. But people who buy homes as investment properties are few in number, and they don’t sell homes every five years.

When you consider the transaction cost of selling a home, which is in the range of 6% because of real estate commissions, selling a home every five years is a really bad idea. It eats up your equity. If you bought the home with a 30-year mortgage, and you kept the home is an investment property, and you get the renters pay off the home, then you have made an exceedingly wise investment decision. But this is not what the vast majority of Americans do. They sell the home that they are moving out of, because they want to move up. They want what little equity they have received out of the home to serve as the down payment for the next home, which is more expensive, in a better neighborhood, and is larger. In other words, this is not an investment; this is a consumption good. They are using a home as a way to buy status. This goes back about as far as men have been married, and wives have wanted to move up. Men also like status, and housing is a way of getting it. But let’s not confuse this with investing. Investing is where you buy a starter house, and you never sell it.

The fact that some young people under age 35 have decided not to buy houses is important for this reason: they probably will not accept a forced savings program. They should use their money to buy a home, and then never sell the home. They should move out after five years, not for reasons of status, but because they can get a government-subsidized loan: a family mortgage. The government subsidizes mortgage rates: low. They should use the home they bought as a starter home as an investment property. This is sensible investing. But this is not what most people do.

August 17, 2022 Joseph Feibel

Great insight. Personal finance should be expanded to include strategy. The 22-35 demographic as a group does not have a plan and expects the government to bail them out when their plan fails.

August 18, 2022 Mark Hardison

Thanks. I agree with what uoy said Mark.

August 18, 2022 Joseph Feibel

Oh yes thanks Joe. So now I find out staying in my house to pay off my mortgage was the one wise thing I did in the last thirty years. This is good news.

August 19, 2022 Daniel Mendoza

The system is rigged. If you want to create wealth buying a house is a liability, not an asset. No matter how long you stay in it. If you create wealth, you buy and own Multi-family. Then rent where you live . Create cash flow and pay no taxes this way.

Kyle Kunkel 30 years old. 😁💪🏽

August 20, 2022 Kyle Kunkel

HOUSING AFFORDABILITY HARDEST IN 33 YEARS, NAR SAYS

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