Affordability Plummets Amidst Mortgage Rate Spike
The decline in housing affordability can be attributed to multiple factors, with the Federal Reserve’s aggressive interest-rate hike campaign being a primary driver. Mortgage rates climbed above 7% last year for the first time in almost two decades. Although the average rate for a 30-year fixed loan currently stands at 6.67%, which is a decline from last year’s 6.27%, it still remains significantly higher than the pandemic-era lows of 3%. Consequently, the typical monthly mortgage payment has increased by approximately $250 compared to a year ago, as stated in Redfin’s report.
Supply Shortage and Listings Drop Further Compound the Issue
In addition to rising mortgage rates, the decrease in housing affordability is exacerbated by a shortage in supply. The number of available homes for sale at the end of November was down more than 4% compared to the same period last year, and a staggering 34% lower than the average pre-pandemic inventory levels in early 2020, as reported by Realtor.com. This decline in listings has contributed to the surge in home prices, further limiting affordability for potential buyers.
A Glimmer of Hope for Housing Affordability
Despite the current challenges, there is some positive news on the horizon for housing affordability. Experts suggest that the situation is gradually improving, and this trend is expected to continue into 2024. Elijah de la Campa, a senior economist at Redfin, expressed optimism, stating, “Many of the factors that made 2023 the least affordable year for homebuying on record are easing. Mortgage rates are under 7% for the first time in months, home price growth is slowing as lower rates prompt more people to list their homes, and overall inflation continues to cool.”