Regardless of where you live in the United States, you’re probably affected by the housing crisis. First time homebuyers are finding it challenging to buy a home. Higher housing costs impact disposable income, which makes it harder to buy necessities. High interest rates, inflated home values and low inventory are contributing to the housing crisis. Wondering if the end is in sight? Probably not. According to CNN, “home affordability is the worst it has been since 1984.”
Interest rates rising
In 2020, the APR was as low as 2%. Homeowners who locked in a mortgage during the pandemic were the real winners of the pandemic, especially as the Federal Reserve began to raise interest rates starting in March 2022 to cool inflation. Just recently, the 30-year fixed rate hit a 22-year high of 7.23%. This means an additional $1000 or more in mortgage costs for a median-sized home.
Still, the APR is not as high as it was in the 1980s when it reached 18.4% in October 1981. Some experts believe that interest rates won’t decline any this year, which keeps sellers out of the market, further contributing to the housing problems.
How is affordable housing defined?
Housing affordability is generally defined as only paying 30% or less of the household income toward housing. Unfortunately, as housing costs have increased over the pandemic, wages have not kept up, which increases the burden on households, whether renting or buying. Housing affordability will be a challenge for many.
Can housing costs return to a more affordable rate?
To get back to a more affordable housing market, it will take a reduction in home prices, a reduction in the mortgage rate, or significant growth in household incomes, or some combination of all of these things.
Housing is a benchmark of a healthy economy. With housing taking a bigger bite out of the median income, it’s going to be difficult to feel as if Americans are thriving.