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Home affordability down 5% in 1Q – 10-15% by year end

U.S. housing became less affordable in the first quarter and the cost of carrying a mortgage could increase by the end of year – making 2018 affordability more challenging than it’s been in decades, according to the Spring 2018 edition of The Housing and Mortgage Market Review (HaMMR).

The report found that U.S. housing affordability worsened by 5 percent in the first quarter of 2018, and authors predict that the monthly mortgage payments needed for home purchases could go up another 10-15 percent by the end of the year.

For homeowners, there’s good news in the report: Home values are expected to continue to appreciate.

According to the latest quarterly Arch MI Risk Index, a statistical model based on leading housing market indicators, the average probability of experiencing home price declines remains unusually low at 5 percent. The shortage of homes for sale means that the likelihood of local housing busts – or even mild price declines– over the next two years is near historic lows. This reflects a broad array of favorable fundamentals, such as a healthy job market, relatively low interest rates and home prices in line with incomes compared to their historical norms, at least in the majority of American cities.

“If mortgage rates and home prices continue to rise as expected, affordability will get hammered by year-end as demand continues to outstrip supply,” says Dr. Ralph G. DeFranco, global chief economist-mortgage services, Arch Capital Services Inc. “A strong U.S. economy combined with a housing shortage in many markets means that there is little hope of any price drop for buyers.

DeFranco says the “window to buy before rates jump again is probably closing fast.”

The HaMMR also looked at tariffs and concluded that it will lead to slightly higher construction costs, but it shouldn’t dent the housing market overall. Steel frames account for only a small percentage of new single-family houses, making the tariffs’ direct impact on the total cost of a new home relatively minor.

© 2019 Florida Realtors®

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