Home buying power is taking a huge hit.
Real Cost of Purchasing a Home Up +27% in Past Year
Record-shattering home price growth does not tell the whole story about declining home affordability.
A new report from the title insurance company First American Financial Corp.indicates that the real cost of a home purchase jumped +27% in the last year when considering the impacts of mortgage rate hikes and wage increases.
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First American Chief Economist Mark Fleming said in this report, “Even though household income increased 5% since January 2021, (this income increase) was not enough to offset the negative impact on consumer house-buying power from higher (interest) rates and fast-rising (inflationary) nominal prices.”
Typical Home Sold in January 2022 More Affordable than Typical Home Sold in Threshold of Housing Crash of 2007
What? How can this above title be true?
Salaries are higher today compared to salaries at the time of the housing bubble. Mortgage rates, though climbing, remain much lower than mortgage rates during the bubble.
Fleming said, “Household incomes today are nearly +48% greater than (household incomes in) April 2006 and the average mortgage rate is over 3 percentage points below (mortgage rate levels) in April 2006. In fact, (today’s) real house prices nationally are at the same level they were in 2000.”
In fact, the typical home today costs the typical consumer approximately 66% as much as it did during the housing boom.
Buffer of 66% for Average Home Buyer Appears to be Vanishing
First American’s estimate of real home prices jumped +6% during just one month from December 2021 to January 2022!
During January 2022, home sale prices were +47% higher compared to the housing-boom peak in 2006 BUT…factoring in wage growth and (relatively low) mortgage rates (now rising), today’s home prices still remain -30% lower than they were in 2006.
Fleming believes that homeownership is still relatively attainable for many potential buyers right now but he expects home affordability to slide downward in the future.
Fleming said, “In the near-term, affordability is likely to wane further nationally as rising mortgage rates and increasing house prices continue to outpace gains in household income.”
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Thanks to First American Financial Corp. and Inman.
