Housing affordability has hit lows not seen since Ronald Reagan was President.
One principle and interest payment now requires 35.51% of a median household income for a median home with 20% down, according to Black Knight, a mortgage technology and data provider.
That is the highest ratio going back to October of 1985, when a single principle and interest payent required 36.01% of a median household income. That rate has increased from 24.61% in January, which was well below the long-term average of 25.1%.
The rate on a 30-year fixed rate mortgage just reached 5.89% last week, a rise of 2.5% from the start of the year and the highest point in over 10 years, showing the difficulties the housing market will face going forward.
Andy Walden, Black Knight vice president of enterprise research, said in an interview, “The record low interest rates we’ve seen over the last two and a half years have really allowed home price growth to significantly outpace income growth. Now all of a sudden when rates are rising back up towards their long-term norms, we’re seeing a lot of pressure felt from an affordability standpoint.”
Even as prices appear to soften in several regions, many buyers are still being priced out of the market.
From June to July, a typical home price dropped 0.77%, according to data from Black Knight, which was the largest month over month drop since January of 2011 and the second largest drop in July ever seen.
In August, the median home price dropped from $449,000 last month to $435,000 in August, according to data from Realtor.com. However price growth is still strong by historical standards.
As an example, the average home price was 3.5 years of median income in the mid-1980’s. In June though, the average home price was equal to 6.4 years of median household income.
Walden noted, “We’re pretty significantly out of balance right now. It would take some combination of a 40% rise in incomes, roughly a 3-percentage-point decline in 30-year rates — getting closer to that low 3% range — or a 30% pullback in home prices”
