Rising rates and home prices have contributed to the least affordable housing market since 1984, according to the latest Mortgage Monitor Report from Intercontinental Exchange (ICE). It now takes 40.6% of the median household income to cover monthly principal and interest (P&I) payments after averaging less than 25% over the past 35 years.
The P&I payment needed to purchase a median-priced home increased $144 per month over the past 30 days to more than $2,500, according to the report. As a result of difficult market conditions, purchase-mortgage applications fell 47% below pre-pandemic levels the week of Oct. 26, the weakest applications since rates began to rise, according to ICE.
“Affordability pressure is not coming from interest rates alone, though. The last time affordability was this bad in the ’80s, rates were in the double digits and the average home was about 3.5 times median income, in stark contrast to today’s price-to-income ratio of nearly 6 to 1,” says Andy Walden, ICE vice president of Enterprise Research.
Tight inventory levels have supported rising prices, which hit another all-time high in September, according to ICE. Annual home price growth accelerated to 4.3% in September, though month-over-month prices were essentially flat.
“Rates are up 75 basis points from when September’s closed sales went under contract, which has cut consumer buying power by another 8% in the time since,” Walden says. “Now, with rates above 7.5% and affordability at a 39-year low, it’s fair to expect prices to weaken later in 2023.”
