Eroding Home Affordability
Eroding Home Affordability

Eroding Home Affordability

Mobility Trends and Hot Topics

Published: Sep 2, 2022

It is expected rising costs and worker shortages will further erode home affordability in 2022 and the Federal Reserve,  signaling it will begin tightening monetary policy in March, may add to that challenge by raising the Fed’s borrowing rates four-to-five times this year.

Further consider that:

  • Home prices in January were 19.1 percent higher year-over-year, according to a report released in March by CoreLogic.
  • The typical home sold in 61 days in January, faster by ten days compared to January 2021.
  • It is highly likely the average 30-year fixed rate mortgage could near or top 4 percent by year’s end.  

Though rates are still low in historical terms and will help to slow the growth in home prices, it may make home-owning even less affordable for buyers taking out loans. This makes it difficult to competing for listings with all-cash buyers not affected by rising rates.

Though the economy is recovering from the pandemic with strong corporate profits, pent up consumer/business demand, and strong wage/job growth, the U.S. economy is exhibiting significant momentum and inflationary pressure.

However, low existing home inventory and strong buyer demand will keep housing moving forward in 2022, even as builders struggle with supply chain challenges and costs.  Building material costs are up 21% compared to a year ago.  Despite an initial decline in 2022, lumber prices have surged to prices not seen since summer 2021. These may limit the pace of construction and keep upward pressure on home prices, according to economists. 

Though the NAHB expects overall housing production to rise 2.5 percent this year to a 1.63 million annual pace, builders themselves also face a shortage of qualified labor. The National Association of Home Builders estimates the residential construction sector will need to add 740,000 workers a year just to keep pace with the industry’s growth, retirements, and departures.