Mortgage payments have not been so unaffordable since 2008

Supercharged home prices in markets across the country offset the impact of slightly higher incomes and historically low interest rates, two factors that generally make home ownership more affordable. Prices rose at a record pace for the fourth consecutive month in July, due to a shortage of homes for sale. Higher prices force buyers to take larger loans, essentially signing them up to make larger mortgage payments each month for years to come.

The Atlanta Fed calculates affordability using a three-month average of CoreLogic Inc.’s median home prices and median household incomes based on census data. In July, the latest month in the Atlanta Fed’s calculations, median home prices were $ 342,350, up 23% from the previous year. Median earnings were $ 67,031, up 3%.

The drop in affordability will have the biggest impact on first-time home buyers, who will have to take larger monthly payments, buy less desirable homes, or exit the market altogether, economists said.

“It’s a lot harder for people to gain a foothold in the housing market,” said Ralph McLaughlin, chief economist at Haus, a real estate finance start-up. “The question is whether this is an insurmountable hurdle or is it just that these households have to spend more of their monthly income on the mortgage.”

The dynamics were different in 2008, even if the effect – disarray on the real estate market – was the same. Home prices were falling, and many Americans owed more on their homes than home values. In addition, widespread job losses have weighed on household income for years.

Christopher Ferreris and his wife, Danielle Ferreris, have been hoping to buy a home in the Tampa, Florida area for nearly two years. They can afford monthly payments of around $ 1,600, but every home they’ve seen requires monthly payments that are around 25% higher than that.

“It’s almost like we’re in a pattern of waiting because of its difficulty,” Ferreris said.

The typical value of a home in Tampa was $ 331,000 in August, up from $ 265,000 at the same time last year, according to Zillow.

The Ferreris are doing everything they can to save money, and Mr Ferreris started a side business last year buying and selling sports cards. He now relies on her for around $ 500 a month.

In the first months of the pandemic, homes became more affordable, according to the Atlanta Fed. Interest rates have come down. And house prices, while continuing to rise, were not picking up at such a rapid rate.

But then many families, after sitting on the sidelines for a few months, rushed to buy houses, eager for more space or to leave crowded cities. Fierce competition has driven up house prices. Affordability has started to decline.

In early 2021, Americans needed about 29% of their income to cover a home loan, the Atlanta Fed estimated. This figure rose to around 32% in July. The Atlanta Fed includes principal, interest, taxes, insurance, and related costs in mortgage payments.

“Any affordability that mortgage rates were lending has pretty much wiped out at this point,” said Daryl Fairweather, chief economist at Redfin real estate brokerage.

Home buyers have noticed. About 63% of consumers polled in August thought it was the wrong time to buy a home, according to Fannie Mae. This was up from 35% in the same period last year.

Write to Orla McCaffrey at [email protected]