The housing market entered 2022 with continued strength, bolstered by the pandemic housing boom. As the year has progressed, though, affordability has deteriorated as a result of persistent high mortgage rates and frothy home prices, according to Fortune. Through the use of three illustrative charts, Fortune provides context for the “historic deterioration” of the housing market, highlighting the relationship between mortgage rates, overvalued and undervalued properties, and mortgage payments.
Affordability has continued to worsen since this spring. As of Tuesday, the average 30-year fixed mortgage rate sits at 7.14%. That marks both the highest mortgage rate since 2002 and the biggest 12-month jump since 1981. In January, a borrower who took out a $500,000 mortgage at a 3.2% rate would be on the hook for a $2,162 monthly principal and interest payment over the course of the 30-year loan. Now, at a 7.14% rate, that monthly payment would be $3,374.
At the end of the day, it isn't just about the numerical value of mortgage rates or home prices. Instead, housing market affordability comes down to new monthly mortgage payments relative to buyers' income. If a borrower can't meet lenders' strict debt-to-income limits, they aren't buying.
In that regard, things aren't looking great for would-be buyers.
In America’s 50 largest regional housing markets, the typical new mortgage payment has spiked 69% through the first nine months of 2022. That’s according to an analysis conducted by Zonda, a real estate research company.
"Housing affordability is driven by many factors, but the two key inputs are home prices and mortgage rates," Zonda chief economist Ali Wolf tells Fortune. "Interest rates have risen dramatically since the start of the year, though, putting a strain on housing affordability. Buyers were already starting to get priced out of the market when interest rates moved from 3% to 4% and every 100-basis point increase has continued to price millions of Americans out of homeownership."
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