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The dream of home ownership could be slipping through the fingers of many Americans. Why? Steeply rising rates are either pricing them out of properties or outrightly disqualifying them from mortgages.
According to a MoneyTransfers.com analysis, the 30-year fixed-rate mortgage (FRM) leaped to 5.27% on May 5, 2022, a 13-year high. Contrastingly, the FRM was 2.96% a year back. Similarly, the 15-year FRM averaged 4.52%, up from 2.30% a year ago.
“Americans are having to dig deep into their pockets for home purchases,” says MoneyTransfers CEO Jonathan Merry. He adds, “Larger monthly payments threaten to price out buyers that can’t put down significant down payments. That’s happening in the backdrop of escalating rent nationally exacerbating the difficulty of first time home ownership.”
That sharp rise in the mortgage rates also coincides with the shooting up of median house sale prices. The figure had stood at $423,600 at the close of Q4, 2021. But it rose by 1.44% in Q1 2022 to stand at $429,700, an all-time high. At the time, America was grappling with an 11.5% inflation that severely dented spending ability.
Enthusiasm for home ownership hasn’t waned
The rising mortgage rates don’t seem to have dampened the enthusiasm for home ownership. Despite the upswing in prices, demand for housing units outstrips the supply. Consequently, customers are outbidding each other for homes raising their costs.
Housing prices shot up the roof at the onset of the COVID-19 pandemic. Market statistics put that upswing at 32-39% higher than the pre-pandemic rates. The scourge’s mitigation measures saw growth in remote working hence a surge in need to relocate.
At the time, the market was already in short supply of houses, partly due to the great recession. This demand has carried on, skyrocketing house prices. But there’s one glimmer of hope in this situation; the market has attracted many investors seeking to fill the void in the housing supply.
Is another housing bubble in the offing?
The past couple of years have seen US home prices soar by nearly 34%. That includes roughly 20% in the past year. But historically, housing prices have tended to increase by 4.6% yearly.
Meanwhile, the 4.8% growth in wages over the last year hasn’t kept pace with the spurt in housing prices. This is raising concern throughout the industry. Many are questioning if the US is staring at another housing bubble akin to 2008.
Divided opinion
There’s divided opinion on that matter. On the one hand, experts like Zillow and Morty believe we are not in a bubble. They argue that today’s American homebuyer is better off financially than their counterparts in 2008.
A Bank of America study bolsters that argument. The study indicates that over three-quarters of homebuyers have super-prime FICO credit scores. In contrast, only 25% of them did so back in 2008. Again mortgage debt rose to 100% of household incomes compared to the 65% it is now.
But not everyone shares in Zillow’s and Morty’s enthusiasm. The Federal Reserve Bank of Dallas also conducted its research in March. It found that home prices are outpacing many Americans’ financial ability. They, however, add that any market correction occurring won’t be as severe as the 2008 one.
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