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Tuesday, June 28, 2022
ArlingtonReal EstateHousing-affordability crunch time is at hand

Housing-affordability crunch time is at hand

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Ballooning mortgage costs, driven by skyrocketing prices and interest rates, have made mortgages less affordable than at any time since at least 2007.

Demand for homes has pulled back in response, easing price growth, slowing sales and boosting inventory, according to the latest market report from Zillow.

Mortgage rates have shot up in early June, averaging 5.78 percent as of last week. A new purchase of a typical U.S. home at that rate would mean monthly mortgage payments of $2,127 – 51 percent higher than a year ago and up 36 percent year to date.

“We are already seeing signs of waning demand, and expect these recent rate hikes to quicken the market’s needed rebalancing,” said Zillow economist Nicole Bachaud. “While shoppers will likely experience less competition for homes than the frenzied recent months, their purchasing power has dwindled.”

Incomes are lagging further behind fast-rising mortgage costs, leading to the most significant affordability challenges in the past 15 years.

The latest data available from April show monthly payments taking about 28 percent of homeowners’ monthly income – dangerously close to the 30-percent threshold, beyond which is considered a cost burden.

With rates now far above April’s average, that share is at or very near 30 percent already.

After annual price appreciation set new record highs for 13 straight months, home values finally turned the corner in May to show a slightly slower pace of annual growth: 20.7 percent, down from 20.9 percent in April.

“Arriving in the middle of the spring selling season, this deceleration is a clear signal that buyers are dialing back their demand for homes in the face of daunting affordability challenges,” said Jeff Tucker, senior economist at Zillow.

The trend appears to show that the market passed an inflection point for home values between April and May, transitioning from ever hotter to somewhat cooler price growth. The typical U.S. home is now worth $349,816 – nearly $60,000 more than last year and almost $95,000 higher than in May 2020.

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