This is how poor housing affordability is today

This is how poor housing affordability is today
This is how poor housing affordability is today

Home prices hit another record high in April, despite rising mortgage rates and a surge in the supply of homes for sale. Typically, such circumstances would lead to weaker prices, but the current housing market is unlike anything seen in recent history.

According to the S&P CoreLogic Case-Shiller National Home Price Index, prices rose 6.3% in April from the previous month. This marks the second consecutive month in which the national index has risen at least 1% from its previous all-time high.

It’s worth noting that these price increases occurred despite a sharp increase in the average rate on 30-year fixed-rate mortgages in April, which rose from 6.9% to 7.5%, as Mortgage News Daily reported.

Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, said in a press release: «2024 is a close second to last year’s strong start, when March and April saw significant gains before slowing down in the summer and fall. As we enter the summer, the market is reaching all-time highs, once again testing its resilience during historically active periods of the year.»

There is some relief in the fact that the annual and monthly gains of the price index are slowing down a bit. The annual gain in March was 6.5%.

However, this situation contributes to one of the least affordable housing markets in U.S. history, whether for ownership or rent. A new report from Harvard’s Joint Center for Housing Studies reveals that the housing cost burden has reached a record high.

The study shows that home prices are now 47% higher than they were at the start of 2020, with the median sales price five times higher than the median household income.

For renters, while rent growth has slowed due to the increase in new housing starts this year, prices are still 26% higher than in 2020 and are rising in three out of five markets.

More than 22 million renter households, representing half of all renters, spend more than 30 percent of their income on housing, which is considered a «cost burden» by the Joint Center for Housing Studies. Additionally, twelve million of these households spend more than half of their income on rent.

As for homeowners, 20 million of them face high costs due to monthly mortgage payments.

All these levels of financial burdens represent new records.

Homeowners are also struggling with significant increases in insurance premiums, averaging 21% between 2022 and 2023, according to a report from the Joint Center for Housing Studies. Property taxes are also rising.

The current imbalance between supply and demand continues to support home prices. Housing supply was already low before the Covid pandemic, as home builders were still recovering from the 2008 financial crisis. The pandemic-induced rush to buy homes further exacerbated the decline in supply, reaching record lows for several years. Home builders simply couldn’t keep up.

Supply is now on the rise, with new listings up 11% in April compared to March and up 16% compared to April 2023, according to Zillow. This has led to an 18% year-over-year increase in total inventory for sale. While this may seem substantial, supply remains relatively low, especially when compared to high demand.

Zillow Senior Economist Orphe Divounguy said, “The sudden and rapid increase in mortgage rates in April pushed housing affordability even further out of reach for many potential buyers, causing some who could still afford it to hold off. As a result, the share of listings with a price cut rose to 22.4% in April, the highest rate for April in six years and a significant increase from 17.2% a year earlier.”

However, Divounguy added that despite the relative slowdown in April sales, affordable homes sold in just 13 days, just three days less than in April 2023.

In May, inventories increased to a 3.7-month supply. A balanced market between buyers and sellers is usually considered to have a six-month supply.