By Nathalie Voit

Home affordability plunged to its lowest level since July 2006 as mortgage rates nearly doubled since the start of the year.

According to the National Association of Realtors (NAR) Housing Affordability Index, housing affordability tumbled to 102.5 in May. This was the lowest reading since July 2006, when affordability sank to 100.5 at the peak of the 2000s housing bubble. To get a picture of home affordability, NAR considers median existing-home prices, median family incomes, and monthly mortgage rates.

NAR said affordability deteriorated in May as mortgage payments rose by 6.2% over the month. In contrast, the median family income barely budged upward by 0.7%.

Compared to one year ago, mortgage payments soared 51% from $1,220 to $1,842 a month this May. This translates to an annual mortgage payment-to-income ratio of 24.4%, up from 16.9% last May.

NAR said a home purchase is considered unaffordable if a mortgage payment exceeds 25% of a family’s income. May 2022 housing data showed first-time buyers spent 25.6% of their household income on mortgage payments, rendering the average home purchase this May “unaffordable” by NAR standards.

At the same time, the median existing-home sales price surged by 14.6% over the past twelve months, while median household income climbed by just 4.5%.

Mortgage rates also shifted upward, with the average rate on the 30-year fixed mortgage reaching 5.31% in May. This is up from 5.05% in April and 3.01% one year ago.

“Overall, there is still a housing shortage across the U.S.,” founder and managing partner of Northwind Group in New York Ran Eliasaf said, according to ConsumerAffairs. “This shortage will help initially keep pricing levels at their current status.”

“However, a continued rise in interest rates, coupled with stagnation in wage increases, will have a negative effect on the housing market, with many potential buyers opting to rent as the cost of rent will be lower than the cost of ownership,” he said.