‘The savings and income needed to qualify for a home loan have skyrocketed’: 5 ways the housing market has left buyers in the dust – and it’s not over

The housing market is finally catching its breath after a two-year sprint. A new report details how the frenzy unfolded.

The report, called ‘State of the Nation’s Housing 2022’ by the Harvard Joint Center for Housing Studies, reveals the sharp rise in costs associated with owning or renting a home and how competition among buyers has intensified.

With average home prices passing over $400,000, owning a home has become much less affordable for the average potential buyer.

The national median listing price for active listings was $447,000 in May 2022, up 17.6% from last year and up 35.4% from May 2020, according to the Realtor.com.

To buy a mid-priced home, a buyer would have to put up more than 38% of their income, according to the Atlanta Fed’s Home Ownership Affordability Monitor.

About 67 of the top 100 real estate markets experienced record rates of appreciation at some point in the past year, according to the report.

House prices hit new records

And that environment is likely to persist for a while given tight inventory. In May, homes were on the market for just 16 days on average, which is the lowest amount on record, according to the National Association of Realtors.

“Unlike the previous run, when weak credit and speculative buying fueled a housing bubble, the current rise in home prices largely reflects years of under-building,” the report explained.

Supply chain restrictions, labor shortages, regulatory restrictions that strangle home builders are all to blame for the slow pace of new construction.

House prices and apartment rentals soar

Renting has also become less affordable. “The cost of owner-occupied and rental housing continues to rise,” said the authors of the Harvard report.

Rents were up 12% nationally in the first quarter of this year, and higher in some metropolitan areas.

While rents have fallen in major cities like New York during the pandemic, the recovery amid the return-to-work environment has been marked. In the first quarter of 2022, apartment rentals in New York were up 20% from the previous year.

Rents for single-family homes increased even faster, 14% in March 2022 compared to the previous month.

Growth in demand for apartments vs. offer

The demand for rental units has really increased in the last year.

“A number of temporary factors helped drive rental demand in 2021,” the report explained.

“Federal cash aids, student loan deferrals, and the resumption of employment likely increased the incomes of many young adults enough that they could start families of their own,” the authors said.

“Other government interventions have protected millions of renters [who were] back on your eviction leases. High prices and tight supply of homes for sale have also played a role in increasing demand, keeping many potential buyers in rental properties,” they added.

Investor participation in home purchases rises

Part of the pressures in both markets comes from increasing investor participation in the rental market.

Investor share of single-family home sales in the first quarter of this year reached 28%, the report noted, citing data from CoreLogic, which rose 19% a year ago. Between 2017 and 2019, the share of investors in the sale of single-family homes was 16% on average.

Investors have focused on the South and West, the report said. In the last quarter of 2021, the highest share of investors in real estate sales was recorded in Atlanta with 41%, followed by San Jose with 38%, Phoenix and Las Vegas with 36%.

To make matters worse, investors are targeting lower-priced homes, driving first-time buyers away.

“In September 2021, investors bought 29% of homes sold that were in the bottom third at the metro area selling price, compared with 23% of homes sold in the top third,” the report said. “Investor-owned homes are typically converted from owner-occupied units for rent or upgraded for resale at a higher price.”

Mortgage payments are rising

The Harvard report estimates that payments for an average-priced home have increased by more than $600 a month.

In its efforts to combat rising inflation, the Federal Reserve raised interest rates, which drove mortgage rates up sharply. The average rate on a 30-year fixed-rate mortgage is over 6%, according to the Mortgage News Daily.

“With prices continuing to rise along with interest rates, the economy and income needed to qualify for a home loan have soared, increasing financial hurdles for first-time and middle-income homebuyers,” the report said.

It’s an expensive proposition to own a home in current conditions: If you’re a first-time buyer who’s paying 7% down on a mid-priced home, that would equate to $27,500 in April 2022, the report said. .

That figure “would only rule out 92% of renters whose average savings are just $1,500,” the authors added.

To buy a mid-priced home, the minimum annual income needed to pay down payment has increased from $79,600 in April 2021 to $107,600 in April 2022.

Write to: aarthi@marketwatch.com

Leave a Reply

%d bloggers like this: