Potential homebuyers are experiencing historically challenging market circumstances as their budgets are crushed by high housing prices and high mortgage payments. Recent data from the National Association of Realtors (NAR) showed that home prices increased by 14.2% year-over-year in the second quarter of 2022. The median price of a single-family existing house rose to $413,500, which is the first time the median price exceeded $400,000 since NAR began tracking the metric.
As mortgage rates increased over the last quarter, the affordability of single-family houses “dramatically tumbled,” according to the NAR and as the Federal Reserve hikes interest rates to fight inflation, mortgage rates are expected to increase as well. During the second quarter of 2022, first-time homeowners devoted a staggering 36.8% of their household’s income to mortgage payments, up from 28.7% just one quarter earlier.
In a press release, NAR noted that “A mortgage is considered unaffordable if the monthly payment (principal and interest) amounts to over 25% of the family’s income.” Chief Economist at NAR Lawrence Yun stated, “Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers.”
Mortgage rates have fluctuated as concerns grow that the Fed’s rapid interest rate increases would trigger a recession. According to Freddie Mac, the long-term mortgage rate jumped beyond 5% this week. Several economists have issued warnings that the U.S. home market is likely to have a big price correction in the coming months as high mortgage rates reduce demand from prospective purchasers.
In addition to skyrocketing home prices, the average monthly rent in New York City recently broke above $5,000 for the first time.
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