The current state of the U.S. housing market is presenting challenges for potential homebuyers, as home prices continue to rise without any signs of slowing down. In fact, according to the latest data from S&P CoreLogic Case-Shiller, home prices reached a new record high in March, with a year-over-year increase of 6.49 percent. This trend is further exacerbated by the rising mortgage rates, which are now approaching 8 percent.
The affordability of homeownership has become a significant concern. Bankrate senior economist Mark Hamrick explains, “We’re in a difficult situation where affordability is a challenge. Mortgage rates have doubled since the pandemic, and with the rise in home prices, it’s becoming increasingly challenging to overcome this hurdle.” This sentiment is echoed by many recent homebuyers who are feeling the financial strain of their purchases. In fact, almost half of homeowners across the country regret their decision due to the amount of gross income required to sustain their mortgage payments.
The National Association of Home Builders (NAHB) and Wells Fargo released the Cost of Housing Index, revealing that an average of 38 percent of a homeowner’s income is now needed to make a mortgage payment on a median-priced, new single-family home in the U.S. Additionally, in eight markets surveyed, a typical family would have to spend over 50 percent of their income on a median-priced existing home. The most extreme cases were found in San Jose, California, where 84 percent of a typical family’s income is needed for a mortgage, followed by Honolulu (73 percent), Naples, Florida (71 percent), San Diego (70 percent), and San Francisco (69 percent).
Sarah Mizell, vice president and senior financial advisor with Core Wealth Management in Houston, advises potential buyers to carefully consider their options. She states, “You need a real reason to buy and not make a change for the sake of making a change. The principles don’t change. Your housing cost needs to be between 25-38 percent of gross income. You might be priced out of the neighborhood you want and need to be somewhere else. The financial principles don’t change regardless of the environment.”
One of the major factors contributing to the housing affordability crisis is the lack of inventory. NAHB chief economist Robert Diez emphasizes that policymakers need to enact changes that will allow builders to construct more homes. The NAHB has proposed a 10-point housing plan aimed at easing inflation and increasing affordability. This plan includes promoting careers in skilled trades, revising zoning rules, and streamlining the building permit process.
The financial strain on homeowners is so significant that many are resorting to taking out additional loans or dipping into their savings to cover maintenance and hidden homeowner costs. Bankrate reports that nearly one out of five homeowners have taken on new debt for these expenses, and 24 percent have set aside money specifically for home repairs and maintenance.
As for those hoping for the U.S. Federal Reserve to lower interest rates, Hamrick suggests that they may have to wait longer. He explains, “While the Fed doesn’t directly control mortgage rates, it would be expected that we’d see some small declines by the end of the year.”
Despite the challenges, some determined homebuyers are still entering the market. According to U.S. Census Bureau statistics, the median sales price of new houses sold in April 2024 was $433,500, with an average sales price of $505,700. However, even individuals in higher income brackets are being advised to carefully consider their options. Mizell advises her clients to think long and hard about their priorities and not chase after a home for fear of missing out. She emphasizes the importance of distinguishing between what they want and what they actually need.
In conclusion, the U.S. housing market is currently experiencing record-high prices and rising mortgage rates, making affordability a significant challenge for potential homebuyers. The lack of inventory further compounds the issue. However, policymakers and industry experts are advocating for changes to alleviate the housing affordability crisis. It is crucial for buyers to carefully assess their financial situation and priorities to make informed decisions in this challenging market.
