Housing Affordability Plummeted To Lowest Level On Record In 2023

Housing affordability in the United States has hit an all-time low this year due to the spike in mortgage rates, making it impossible for millions of Americans to own homes. According to a new report by Redfin, only 15.5% of homes for sale in 2023 were viable options for the typical US household, significantly lower than the 40% affordability rate seen pre-pandemic and the 20.7% recorded in 2022. This decrease in affordability is also a result of the 21.2% drop in listings over the course of the year, resulting in increased competition and higher prices.

Reports suggest that the Federal Reserve’s aggressive interest-rate hike campaign is one of the key drivers of the increase in mortgage rates, with rates soaring above 7% last year for the first time in almost two decades. Despite rates starting to slowly retreat since then, the average rate for a 30-year fixed loan this week reported by Freddie Mac remains at 6.67%, still higher than the 6.27% rate recorded one year ago and pandemic-era lows of 3%.

The rise in mortgage rates has significantly impacted regular citizens with lower incomes, with the typical portion of average wages nationwide required for major homeownership expenses reaching 35%, according to a report by real estate data provider ATTOM. The typical monthly mortgage payment costs about $250 more than it did one year ago, making it challenging for many Americans.

The steep decline in affordability rates, coupled with the rise in mortgage rates, have made it almost impossible for people to afford homes, leading to a significant drop in homeownership across the country. However, despite the increase in mortgage rates, home prices have hardly budged, leaving many potential homeowners frustrated and forced to rent for longer periods.

The decline in affordability rates is not just a result of the rise in mortgage rates, but also that of a drop in listings, which fell by over 21% in the last year. This has led to a situation where many people have to settle for homes that are not ideal, with many being forced to purchase properties that require significant renovations and repairs.

Overall, the housing sector in the United States is facing significant challenges due to increasing mortgage rates and a lack of affordable homes. Experts suggest that the government needs to take significant steps to make housing more affordable and ensure that individuals are not priced out of owning property. Failure to act could lead to a significant increase in inequality and homelessness in the country.