Residential real estate was fairly cheap before the pandemic, or at least cheap compared to today. A land rush for homes in many cities changed that across most of the country. Higher mortgage rates also have attacked affordability. The number of Americans who cannot afford a house has soared by millions in the past several months.
While moderate home prices helped affordability in 2018 and 2019, a drop in mortgage rates to 3% for 30-year fixed mortgages brought home prices into range for people who could not be home buyers financially. Usually, this was measured by the income-to-median home price ratio in each market.
Realtor.com’s recent Every Time Mortgage Rates Rise, Buyers Need to Make This Much More to Afford a Home report shows the effect of home prices and mortgage rates on the number of people who can buy a home in America. It is based on data that covers 128 million homes. Rocke Andrews, a mortgage broker at Lending Arizona, told Realtor.com: “It’s basically a frozen market until prices come down more or rates come down, or both.”
As the Federal Reserve raises interest rates, mortgage rates will not decrease but will rise.
Realtor.com says the median home price in the United States is $427,250. The average mortgage rate is 6.7% for a fixed-rate loan. Based on this, a buyer must have a median annual income of $124,000 to buy a home under these circumstances.
The study concludes that 20 million Americans who could afford a home last year can no longer do so. This also means only 36 million people can buy homes today, based on the Realtor.com formula. At 3% mortgage rates, the comparable number was 54 million.
The national real estate market will be ruined if mortgage rates move above 10%. The number of people who can buy a home has dropped to 23 million. Demand, based on the residential real estate market over the past decade, has disappeared.
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