Three Drivers of Housing Affordability…
Prices, rates, and incomes. We know that incomes will drive housing prices quicker during recessionary times as incomes will decline quicker than they will rise. Inflation can act as a decelerator on wage increases. We have seen the impact of aggressive interest rate increases in 2022 and are aware of how a quarter point increase can often times create a short pause in otherwise successful markets.
Price increases generally don’t slow down hot housing markets as buyers begin to experience the Fear of Missing Out and stretch to acquire their new home. The market shift happened in 2022 when buyers experienced the inverse concern Fear of Buying Too High. The steep and abrupt rise in interest rates, the slow descent of home prices and the inflationary absorption of pay raises created caused housing affordability to drop 48% in 2022.
Anecdotally, many real estate professionals feel the key indicator that will turn the market is a 5% interest rate. This isn’t too far from today’s rates but still seems too far away from dips in rates during the past 12 months.
Please give us a call at Premier Funding Network to answer any of your mortgage questions at 714-283-9900.