Housing affordability drops, as market recovery takes hold

While rising home prices are a boon to the greater economy, they are also starting to squeeze the record affordability that was drawing so many home buyers back into the market, CNBC reported. The National Association of Realtors’ Affordability Index shows that housing affordability is now dropping, as asking prices have begun to rise faster than rents, a trend that could hurt the fledgling housing recovery.

“The price recovery is strongest in the largest metros, and price gains have now surpassed rent gains in the largest 25 rental markets. However, price gains are starting to waver in smaller markets,” Trulia’s Jed Kolko, said.

Moreover, so-called “guarantee fees” charged by by Fannie Mae and Freddie Mac for bundling and selling mortgages has also hurt the affordability of mortgages, despite historically low interest rates.

“G-fees will continue to increase as a way to run down the GSEs’ [government-sponsored enterprises] role in the mortgage market,” Paul Diggle of Capital Economics wrote in a statement. “Stronger mortgage demand suggests that would-be buyers are growing in confidence. Nevertheless, mortgage lending will continue to be held back by tight credit.” [CNBC] —Christopher Cameron