America’s affordable housing crisis has reached a new milestone

New York Weekend Edition /
Feb.February 19, 2017 10:45 AM
 

The affordable-housing crunch worsened last year. In the final quarter of last year, Americans spent the highest share of their incomes on mortgage payments since 2010, according Zillow. The economy’s improvement after the housing crash generated new buyer demand for housing, even though the homeownership rateremained historically low.

Simultaneously, incomes rose slowly, and affordable housing inventory — especially in populous cities — did not match the demand. This combination inevitably drove home values higher.

And as of late 2016, affordability worsened further as interest rates began their post-election climb from historic lows.

 

Zillow estimated that a typical homebuyer could expect to pay 15.8% of their income on a mortgage at the end of 2016, the highest share since 2010. California was home to the markets where the highest shares of income were used to pay mortgages: Los Angeles, San Jose, and San Francisco.

“Nationally, mortgage rates still have room to grow before the share of income needed to pay the median monthly mortgage reaches the historical average, but many more expensive coastal markets are either close to or have exceeded what has been considered historically affordable,” Gudell said in a report released on Thursday February 16.

The Bankrate.com 30-year fixed national average mortgage rate on election day was 3.53%. On Friday February 17, it was at 4.04%, according to Bloomberg.

Post-election, the expectation for higher rates pushed some prospective buyers into the market to lock in lower rates, contributing to a further increase in home prices.

“As mortgage rates rise, buyers will face higher financing costs and already expensive homes will come with even higher monthly mortgage payments,” Gudell said.

There may not be much to constrain the rise in home values. Economists expect the Federal Reserve to raise interest rates slowly, and so overall borrowing costs could remain historically attractive for some time, providing demand.

On the supply side, existing homeowners that declined to move to avoid higher rates may continue to stay put. The National Association of Homebuilders said in January that existing inventory fell for a 19th straight month in December. If demand falls because rates are rising, inventory may not rise at a fast-enough pace to cool home prices.

In most major markets, home-value growth contributed more to higher mortgage payments than interest rates did, according to Zillow.


Related Articles

arrow_forward_ios
A rendering of 165 Broome Street (Credit: Handel Architects)

Nonprofit plans affordable housing development near Essex Crossing

Nonprofit plans affordable housing development near Essex Crossing
All Falls Down: Kanye West’s “Star Wars”-themed affordable housing plan hits snag

All Falls Down: Kanye West’s “Star Wars”-themed affordable housing plan hits snag

All Falls Down: Kanye West’s “Star Wars”-themed affordable housing plan hits snag
From left: Google's Sundar Pichai, Facebook's Mark Holliday, and Factory_OS's Rick Holliday and Larry Pace (Getty; Factory_OS; iStock)

Facebook, Google back modular housing startup

Facebook, Google back modular housing startup
A rendering of 153-10 88th Avenue in Jamaica (Photo via Zara Realty)

Zara Realty plans 218K-sf Jamaica development

Zara Realty plans 218K-sf Jamaica development
Housing prices in the Rockies see a bump as tech workers move in from the coasts (iStock)

Housing prices soar in mountain towns thanks to tech transplants

Housing prices soar in mountain towns thanks to tech transplants
New York Attorney General Letitia James and 63-36 99th Street in Rego Park (Getty; StreetEasy)

“Not on my watch”: AG Tish James fines developers who violated 421a

“Not on my watch”: AG Tish James fines developers who violated 421a
902 Drew Street and 400 East 58th Street (Google Maps)

New York’s multifamily sales improve in Q3

New York’s multifamily sales improve in Q3
San Francisco Mayor London Breed (Getty)

San Francisco mayor blasts “lefty movement” for blocking housing

San Francisco mayor blasts “lefty movement” for blocking housing
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...