First time?
The news on Wednesday that the Fed would leave interest rates unchanged, only the second pause since embarking on a rate-hiking campaign in March 2022, may offer little relief for prospective first-time home buyers reading this newsletter. That’s because the economy has dealt you a pretty rough hand, with the combination of soaring mortgage rates and stubbornly high house prices creating one of the most unaffordable markets in decades.
Indeed, the National Association of Realtors' housing affordability index has dropped to 87.8, the lowest it’s been in nearly four decades. For some perspective, a reading of 100 indicates that a median-income family would have precisely enough to purchase a median-priced home on a 30-year fixed mortgage. At the start of 2021, the same index showed affordability at ~175.
Hoarded up
With mortgage rates through the roof — most quotes are now north of 7% — current homeowners aren’t in a rush to up sticks and move, as those who secured mortgages during the era of ultra-low interest rates are understandably reluctant to re-enter the market. Simultaneously, home builders are increasingly hesitant about new construction projects, with concerns about who can purchase a new home with a 7%+ mortgage, resulting in a monthly drop of 11.3% in housing starts in August.
