This topic makes me think of a record. Remember back in the day, watching records spin while you listened to your favorite music? The housing market, especially when it comes to affordability, almost makes me think of those spinning records. A question many of us are asked as realtors is “when is the market going to turn around”. Based on the popularity of Google searches for “housing bust” or “housing bubble”, it could be surmised that buyers are anticipating relief, but I hate to admit that they are probably not going to see it anytime soon.
Housing affordability has declined dramatically in 2022 due to continued rising home prices and a three-percentage point jump in mortgage rates. Home price appreciation is moderating and is down from the 20% level experienced in 2021. Some of the major industry prognosticators are estimating anywhere from 9% to 14% for 2022. Interest rates are expected to continue to rise through the end of 2022 and could be at 7%. Freddie Mac 30-year fixed-rate mortgage was 6.66% on October 6, 2022.
There isn’t a huge difference between August 2021 and August 2022 when it comes to homes for sale. In August of 2021, homes currently for sale on the market were at 2.6 months. That same month in 2022, homes currently for sale were 3.2 months. Not a really big increase. However, most markets are still in favor of sellers simply because a balanced market between buyer’s and seller’s is at six month’s supply.
Some buyers are feeling that a new home is no longer affordable, and that isn’t necessarily the case. There are actually several affordability indexes that provide a baseline for objective measurement. The National Association of REALTORS® produces a monthly index. Affordability is determined by indicating a median income person/family can afford to purchase a median priced home with a 20% down payment based on a 25% qualifying ratio for monthly housing expense to gross monthly income.
The index is structured so that a value of 100 indicates that a family with the median income has exactly enough income to qualify for a mortgage on a median priced home. When the index is above 100, the family has more than enough to qualify.
The NAR Housing Affordability Index for 2019, 2020, and 2021 was 159.7, 169.9 and 152 respectively. It was 143.1 in January and by April had decreased to 108.1 and the preliminary number for June is 98.5. The decrease in the index is directly affected by rising interest rates and home prices outpacing family income.
Home sales were seasonally adjusted in August to be 4.8 million which is down .4% from the previous month and down 19.9% from August 2021. Part of the reason for the lower sales are because of a smaller pool of eligible buyers, plus concerns about a variety of economic conditions.
Yes, this might not really sound like good news for buyers – no matter if they are first-time or move-up (planning on moving into a larger home). However, this is an objective view of today’s real estate market. It has become more expensive to buy a home now and will continue to increase in the future.
To purchase a home, you’ll need a little momentum on your side. You’ll need to use whatever devices or strategies are available to help you have the extra edge. Yes, homes are appreciating faster than inflation, and the fact that leverage improves the growth rate due to using borrowed funds to buy the home is also to the buyer’s advantage.
So, let’s head back to that original question of “when is the market going to turn to make homes more affordable?” More than likely, the change is going to be a subtle one – it probably won’t be dramatic. Prices will moderate by still appreciating, but not as much as in 2021. Inventories will increase slightly but won’t affect price because the low supply has been almost a decade in the making and it will take time to reach balance in the market.
In the 1980’s, millions of people had mortgages that were 18.5%. Buyers financed the homes at the going market rate, sometimes with creative financing, and refinanced the properties later when the rates came down and the values had gone up. Things did eventually get better for the real estate market, among other things.
Real estate is still a great hedge against inflation, and many times, the largest and best investment individuals have. The Federal Reserve Survey of Consumer Finances found that homeowner’s net worth is 41 times greater than renters.
I can provide Insider Information on Fairfax VA homes for sale. Get you a FREE Market Snapshot Report of Your Northern Virginia Home’s Value, or Search All Northern Virginia Homes For Sale. Put that data you need at the tips of your fingers!