Stagnant national housing market sees affordability hit 39-year low

by | Nov 6, 2023

  • The national housing market faces previously unseen challenges as interest rates reach a 23-year high, making it difficult for potential homebuyers to enter the market.
  • Homeownership costs now demand nearly half of the median household income, a significant increase from historical averages, leading to a sharp decrease in purchase-mortgage applications.
  • Despite rising home prices, current homeowners have seen an increase in equity, but lenders struggle to retain customers looking to leverage their home’s equity in the current market conditions.

The national housing market, in a state best described as unprecedented, continues to chart a challenging course for homebuyers and mortgage holders alike. As interest rates soared to their highest in nearly a quarter of a century and the affordability of homes plummeted to a stark low, the economic climate has become increasingly complex. Homeownership costs are now demanding nearly half of median household income, a staggering figure when considering historical averages. With mortgage rates surpassing the 7.5% mark, homebuyers are becoming increasingly scarce and the dream of homeownership alarmly elusive, according to industry experts monitoring current market dynamics.

According to the November 2023 ICE Mortgage Monitor Report, mortgage rates have reached a 23-year peak, heavily impacting the ability of potential homebuyers to enter the market. With interest rates for a 30-year fixed mortgage exceeding 7.5% for nearly the entirety of October, the monthly principal and interest (P&I) payment required to purchase a median-priced home has exceeded $2,500 — a historic figure. This rise in payments means that 40.6% of the median household income is now needed to cover monthly P&I costs, up significantly from the 25% average observed over the past 35 years.

The report suggests that these costs have outpaced the growth of median incomes, with the price-to-income ratio nearing 6-to-1, a stark increase from the historical average of 3.5 times median income. This discrepancy has resulted in a significant decrease in purchase-mortgage applications, which were down 47% from pre-pandemic levels as of late October, marking the weakest demand since interest rates began to climb.

Additionally, annual home price growth persisted into September, reaching an increase of 4.3%. However, the rate of monthly gains has slowed, signaling that the relentless climb in home values may begin to moderate as we move into the next year, coinciding with the reduction in buyer affordability.

On a more positive note for current homeowners, the rise in home prices has driven up the equity held in U.S. properties, nearing last year’s record high. Homeowners now have approximately $16.4 trillion in equity, with $10.6 trillion of that being tappable equity — the amount that can be borrowed against while maintaining at least a 20% equity stake in the home. However, the report also highlights a challenge for the lending industry: retaining customers looking to leverage their home’s equity. Borrower retention rates are at their lowest in 17 years, not because of interest rate competition, but due to lenders’ difficulties in effectively identifying and reaching potential borrowers in the current market conditions.

This comprehensive analysis underscores the current dynamics at play in the housing market, with rising rates and sustained price increases creating a challenging environment for homebuyers and an opportunity for homeowners looking to capitalize on their property’s equity. As affordability dwindles and the landscape of lending shifts, the market may be poised for changes in the coming year.


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