Given today’s incomes, mortgage interest rates, and the prices on homes, we just had the least affordable month for U.S. housing in our century.
September 2023 was the second record-breaking month this year. We might be headed for a third record before the year’s over.
In fact, the last time it was this hard to buy a home was back in the early 1980s.
Some say the market could get even harder to deal with.
Rates have continued climbing. They’ve gone up to 7%. And then, they kept going. And the rate surge may not be over. Some recent reporting suggests mortgage rates could reach 8%. This comes after Jerome Powell, head of the U.S. central bank, has shown no intent to ease the federal interest rates.
As we said at the beginning of this year, “It’s pretty clear…the Fed won’t be cutting rates over the course of 2023.” The Mortgage Bankers Association thought back then that rates could drop well below 6% this year. That would be just practically impossible now.
☛ Why do mortgage rates rise? It doesn’t happen by accident. See more about what Jerome Powell is doing with U.S. bank rates, and how it impacts mortgage affordability.
What an excruciating time this is for so many hopeful home buyers. Once again, rates have headed upward. That translates into heavier monthly payment burdens, and a lot more debt over the course of a 30-year loan. It means a higher hurdle to qualify for a home purchase and get a loan approval.
Buying Activity Is Down 27% From Last Year.
Right now, buying activity is a startling 27% lower than it was at this time last year. Trying to stay accessible to prospective customers, sellers and builders alike are cutting their home prices.
Even so, many people cannot afford a down payment on a home where they work. It’s become impossible for many renters to save that much — while handling their obligations to pay increasing rents in just about any major U.S. metropolitan area right now.
☛ The average mortgage interest rates are not available to every applicant. Lenders issue their own rates according to the borrower’s credit profile and personal money situation. Here are a number of ways a mortgage applicant may raise a personal credit score.
Normally, the absence of buyers would mean inventory starts to bulge. And, indeed, the array of homes for sale is expanding — unusual for the autumn months. Yet listings are down from last year at this time.
And no wonder! People do not want to sell when the mortgage rates out there today are significantly higher than most homeowners’ current mortgage rates.
Here Are Some Fast Facts About a Slow Market.
Many people understandably wonder: Is everyone going through this, or is it just me? They’ve been renting “until the market cools” but where’s that light at the end of the tunnel? The statistics show exactly why this is happening — and that many people are in the same boat.
Here are the standout stats that tell us what’s going on out there:
- Freddie Mac’s latest figures show mortgage rates nudging a 23-year high, as the average 30-year fixed mortgage topped 7.3%. That’s the highest rate since December 2000.
- Freddie Mac’s latest figures show 15-year, fixed-rate mortgage rates similarly high, as the average 15-year fixed mortgage has topped 6.7%.
- The mortgage rates available today for new loans are significantly higher than the rates on most homeowners’ currently existing mortgage loans. As reported in Yahoo Finance, a Zillow® senior economist says four out of every five current homeowners have a mortgage with interest under 5% at this time. This makes people who have mortgages less inclined to give them up buy putting their homes on the market. In turn, this means less opportunity for the hopeful buyers.
- For the hopeful buyer, the rising price of a monthly mortgage payment is outpacing income. Mortgage consultants avoid letting borrowers spend more than 30% of their incomes on a home, as that poses so much risk that a household will face financial stress.
- Home prices rose to their all-time high in July 2023 after rising six months in a row.
- The sellers’ median home price at this time is $407k judging by August 2023 states. That the highest ever for this time of year, says the National Association of REALTORS®.
It might not be immediately obvious what that cocktail of stats means. But mixed together, they mean a hopeful buyer now faces the least affordable month for U.S. housing at any point in the 2000s.
This, by the way, is why the call for upzoning by tweaking zoning rules to allow for “gentle” increases in density is so very important.
☛ Upzoning means changing local zoning to allow for more housing. Suburban upzoning offers several benefits — including making housing more accessible for more people. Read more on upzoning for affordability at Deeds.com.
An Up-and-Coming Online Mortgage Company Is Laying People Off.
Meanwhile, the software firm Better.com, which issues mortgages, has announced layoffs. This was reported in September by the National Mortgage Professional.
It’s a high-profile turn of events for a company that made a grand entrance on Wall Street in August. Immediately following the debut, Better’s stock plummeted 93%.
Why did it happen? A Better.com rep said new commentary from the U.S. central bank indicates an even rougher stretch ahead for the real estate market.
Just two years ago, 9% of its worldwide staff (some 900 employees) got laid off. Reportedly, the bad news was delivered via Zoom.
But right before taking the company public, the CEO said that the merger of Better.com and Aurora Acquisitions would position the corporation for expansion “as the interest rate cycle turns.”
Uh oh.
“When we were blitz scaling, we were focused on only one constituent…the customer. I think as a public company, we have to be focused on a variety of constituents,” the National Mortgage Professional reports the CEO as saying.
After going public, the CEO remarked, “[W]e’ll be in the public eye a lot more. Also, that’s one of the lessons that we’ve learned over the past two years, is to become more empathetic, to be more considerate.”
For laid off people, a spate of layoffs never feels empathetic. And such a large layoff as this one in the real estate sector just doesn’t project a rosy outlook. For hopeful home buyers, the struggle continues.
Supporting References
FreddieMac.com on mortgage statistics.
Lance Lambert on X (the social media platform formerly known as Twitter).
Christine Stuart for National Mortgage Professional (American Business Media, LLC): Industry News – Layoffs at Better.com (Sep. 25, 2023).
Gabriella Cruz-Martinez at Yahoo Finance: Mortgage Rates Hit a 23-Year High; Homeowners Are “Trapped” as Housing Prices, Rental Markets Surge: Expert (Sep. 28, 2023).
Deeds.com: OMG These Unbearable Housing Costs – Is There Any Escape From Them? (Feb. 7, 2022).
And as linked.
More on topics: Assumable mortgage rates, Who’s locked out of affordable housing
Photo credits: Nataliya Vaitkevich and Ba Tik, via Pexels.