By Nathalie Voit
Home affordability is nearing its worst level on record as housing prices and interest rates continue their sharp upward trajectory, mortgage lending software and analytics provider Black Knight said in a press release on May 2.
According to data from Black Knight, a whopping 95% of the 100 largest U.S. housing markets are now less affordable than their long-term benchmarks (1995-2003), up from just 6% at the start of the COVID-19 pandemic. Thirty-seven markets are now the least affordable they have ever been.
Even after a slight slowdown in home price growth in March, housing prices are still up 19.9% year-over-year. Year-to-date, prices have risen 5.9% nationwide, with nearly one-quarter of the nation’s largest housing markets posting gains of more than 7% in the first three months of 2022. Compounded with soaring mortgage rates, these factors have coalesced to push housing affordability to nearly its worst point on record.
The only time housing prices were less affordable was in 2006, when mortgage rates were 6.79% in the week ending July 6.
“As measured by the share of median income required to make the P&I (principal and interest) payment on the average-priced home bought with 20% down, U.S. housing was the least affordable ever back in July 2006 when it took 34.1% to make that P&I payment,” Black Knight Data & Analytics President Ben Graboske said in the release.
The payment-to-income ratio is now 32.5% as of April 21. An increase of just 50 more basis points or 5% home price appreciation would push affordability to a new all-time low, Graboske said.
The average rate on the popular 30-year fixed mortgage is 5.55% as of May 2, according to data from Mortgage News Daily. For reference, the 30-year fixed started the year at 3.29%. Rates could surge even higher after the Federal Reserve meets on May 3-4. The markets are expecting a 50-basis-point rate hike to tame inflation.