Affordability in the housing market has dropped to a level not seen since 2008

This is due to a combination of increasing mortgage rates and rising home prices. According to the latest data from the Freddie Mac Primary Mortgage Market Survey, the average 30-year fixed-rate mortgage was 3.58% at the end of December 2020, up from an average of 3.04% for the same period in 2019. Similarly, the National Association of Realtors reported that the median existing-home price rose by 14.8% compared to the same time in 2019.

These numbers indicate that affordability has been weakened. Specifically, the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) showed that affordability dropped 5.2 percentage points to its lowest level since April 2008. The HOI considers numerous factors when measuring affordability, such as home prices, mortgage rates, incomes, and unemployment levels.

With affordability decreasing, buyers across the nation are being hit with higher costs. This is especially true in the more expensive housing markets, where home prices rose the most. California, Oregon, and Colorado all saw home prices jump by double digits between 2019 and 2020. Additionally, buyers in high-demand markets may have to compete for homes which has caused bidding wars and further inflated prices.

In order to combat this issue, experts have suggested that policy makers look to increase the availability of affordable housing by incentivizing builders to provide more low-cost homes. Additionally, increasing the housing supply would help ease the pressure on prices. This could be done through a combination of public and private measures such as tax incentives for developers who prioritize affordability or providing financing assistance for builders of affordable housing units.

The current decrease in affordability is a direct result of the economic pullback brought on by the coronavirus pandemic. As more people become financially secure and the economy recovers, affordability could slowly rise again. Until then, it is important that policy makers take action to increase the availability of affordable housing to prevent struggling families from being priced out of the market.

This article was contributed on Jul 20, 2023