Michael Hyman is the National Association of Realtor's Research Data Specialist. Below is his most recent article from November 13, 2020, discussing the housing affordability index, median family income, and mortgage rates.
"At the national level, housing affordability declined in September 2020 compared to a year ago but rose compared to August, according to NAR’s Housing Affordability Index. Affordability increased in September compared to August as the median family income rose by 2.3% while the median home prices rose by 15.2%. The effective 30-year fixed mortgage rate fell to 2.95% this September from 3.00% in August. Mortgage rates are at all time lows compared to a year ago at 3.65%.
As of September 2020, the national and regional indices were all above 100, meaning that a family with the median income had more than the income required to afford a median-priced home. The income required to afford a mortgage, or the qualifying income, is the income needed so that mortgage payments make up no more than 25% of family income. The most affordable region was the Midwest, with an index value of 201.9 (median family income of $79,775 which is twice the qualifying income of $39,504). The least affordable region remained the West, where the index was 112.9 (median family income of $86,968 and the qualifying income of $77,040). For comparison, the index was 170.3 in the South (median family income of $74,859 and the qualifying income of $43,968) and 159.9 in the Northeast (median family income of $92,844 with a qualifying income of $58,080).
Housing affordability declined from a year ago in all regions. The South had a decline of 1.0% followed by the Midwest with a dip of 2.9%. The West had a drop of 1.0% followed by the Northeast with the biggest decrease in affordability at 6.3%.
Affordability is down in two of the four regions from last month. The South had a gain of 1.8% followed by the Midwest with an incline of 2.3%. The Northeast had a decline of 1.1% followed by the West with a dip of 2.3%.
Nationally, mortgage rates were down 70 basis points from one year ago (one percentage point equals 100 basis points). The median sales price for a single-family home sold in September in the US was $316,200 up 15.2% from a year ago, while median family incomes rose 2.3 % in 2020 from one year ago.
Even with lower mortgage rates compared to one year ago, the payment as a percentage of income rose to 15.7% this September from 15.2% from a year ago. Regionally, the West has the highest mortgage payment to income share at 22.1 % of income. The Northeast had the second highest share at 15.6% followed by the South with their share at 14.7%. The Midwest had the lowest mortgage payment as a percentage of income at 12.4%. Mortgage payments are not burdensome if they are no more than 25% of income.
This week the Mortgage Bankers Association reported mortgage applications decreased 0.5 from one week prior. Mortgage rates have continued to decline and are at a historic low. Demand for housing is still high with a lot of sellers sifting through multiple offers on their home. Low inventory levels remain an issue for first-time buyers and potential home owners."
Jobs continue to return, but the pace has slowed significantly. The country added 638,000 jobs in October, which was surprisingly strong due to the current rate of COVID-19 cases.
It's good to see the unemployment rate drop, but the amount of people who have been unemployed for more than six months has increased by 1.2 million.
While the number of temporary laid off workers is dropping, the amount of temporary laid off workers still still came in at 2.3 million. That is down from 18 million back in April and while it's better it is still at an elevated number.
The number of permanent lay offs continue to rise, which leads economists to still believe that a full recovery in jobs is still a long ways away.
At the end of Matthew Gardner's video he states that the housing market continues to outperform, but the pace of price growth is not sustainable and while it has to start tapering off at some point it isn't quite there yet. Check out the graphs below or watch his video to see what was going on with the real estate market in September 2020.
The theme of the video below shows an incredibly hot market that has the potential to turn, because prices have skyrocketed and homes are becoming unaffordable. Another resource for you to look at is the housing affordability index. We get these numbers from the National Association of Realtors, and will continue to update them as they come in.
Matthew Gardner talks about the tight supply of housing and how it is affecting home prices. The median sale price in September was $311,800, which is up by 14.8% compared to a year ago. This is the fastest pace of growth since data started to be collected all the way back in 1968!!
Looking at single family homes annual sales came in at almost 5.9 million, which is up 21.8% and also up 9.7% compared to august of this year. Housing supply is limited with only 1.2 million homes for sale and the months of supply is 2.5 which is another record low. Prices are reflecting massive demand and limited supply with the median sale price being $316,200 which is up 15.2% compared to a year ago. We haven't seen this pace of of price growth since 2005.
Single family building permits rose by 7.8% to annual rate of 1.12 million units a number we haven't seen since 2007. The number of developments that have yet to break ground has risen to a value that we haven't seen since 2018. Hopefully this means more supply down the road. Material, land, and labor, costs are all very high making it difficult for builders to bring homes to market that buyer's can afford.
What the below means in layman's terms, is the low interest rates have fueled the housing market. This is causing home values to go up faster than mortgage rates are dropping. As a result we could find many buyers getting priced out of the market. When buyers exit a sellers market, supply and demand is affected. Sometimes this is where you will see a shift in the market. The higher the number in the housing affordability index indicates more affordability. The index is now on the decline and when it reaches 100 is when the median income qualifies for the median priced home.
Looking back to 2006 the affordability rate was 108 representing it was the most expensive time to buy a home since 1990. In 2008, the market had shifted significantly downwards and the index increased to 138 indicating the most affordable time to buy a house ever.
Shifting into April 2020, the index was at 171.7 reaching a new high in affordability. In October 2020, the National Association of Realtors published the chart below where we see a decline in the index down to 158.9 in August.
If the index continues to drop we will likely see a shift in the market from a sellers market to a buyer's market, if the index approaches 100.
Remember when it goes below 100 the average family cannot afford the average home.
If you would like to discuss how this might affect you please feel free to contact me at (253) 732 - 2500.
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For general informational purposes only. Actual rates available to you will depend on many factors including lender, income, credit, location, and property value. Contact a mortgage broker to find out what programs are available to you.