Housing affordability declining

August 22, 2016

In a recent report by RealtyTrac, a real estate listing website, the housing affordability has dropped. In a measure of 456 US counties, nine percent of the houses are listed as “unaffordable”, as compared to only two percent in the last year. This leads to a thinking that, is it a good time to buy a house right now?

 

The affordability is based on the monthly payments on a median-priced home with a 30-year, fixed-rate mortgage, and a three percent down payment including property taxes and insurance. In 2006, a time considered as “housing bubble”, 99 percent of the houses in those counties were affordable. In January, compared to the end of last year, home prices were 5.7 percent higher, according to the S&P/Case-Shiller 20-City Composite Index. The prices are rising twice the rate of inflation.

 

In addition, supplies are decreasing, so competition is rising, which also leads to a growing price. There is only four to five months’ supply in the market, which is quite low. This situation is beneficial to sales. According to a February sales report of the National Association of Realtor, the month’s sale was 18 percent, compared to the merely 12 percent in the last August.

 

For mortgage buyers, there is another bad news, as interest rate goes higher, mortgage rate rises. Currently, the rate for a 15-year fixed rate rises to 3.19%. The average rate for a 30-year fixed rate mortgage climbed 0.2% to 3.94% for a loan less or equal to $417,000, since last July. Jumbo mortgages, loans more than $417,000, fell to 3.82%. In the last four weeks, the rate on 30-year fixed rate mortgages has risen 11 basis points. However, according to Lynn Fisher, the MBA’s vice president of research and economics, the mortgage rates are probably going to fall due to the downwards of the 10-year Treasury yield.

 

Together with housing prices, renting costs are also rising. For an average four-bedroom suburban home in Los Angeles, New York, and Boston, the rent is nearly $1560 every month. Therefore, for home buyers this year, it might be better to hold the money until interest rates as well as the housing prices start to fall.

 

Interestingly, the Manhattan real estate prices are setting a new record—an average price of an apartment reaching $2 million for the first time in history. The report from Douglas Elliman and Miller Samuel Real Estate Appraisers & Consultants, the average price per square foot also reaches to $1,713 for the first time. As a result, sales have slowed, slipping 3 percent compared to the fourth quarter of 2015. The most expensive apartment that was sold in this quarter was a $35.3 million home with 7,000 square foot, five-bedroom at 101 Central Park West.

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