Rising mortgage rates, steep home prices create 'affordability ceiling' for first-time buyers, expert says

Rising mortgage rates, steep home prices create 'affordability ceiling' for first-time buyers, expert says

Roger Pettingell Sarasota Real Estate

Steep gains in home prices along with higher mortgage rates have created an “affordability ceiling”, especially for first-time homebuyers, according to Realtor.com Senior Economist George Ratiu.

“For many buyers, current market conditions are in a sense, shutting the door literally and figuratively to homeownership in the short term,” Ratiu told FOX Business. 

A variety of factors are putting first-time buyers in a particular pinch. Last month, on top of inflation rising to the highest since November 1981, home prices increased nearly 17% year-over-year. 

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Additionally, most people finance their homes and mortgage rates are not giving prospective buyers any reprieve. 

According to mortgage buyer Freddie Mac, the 30-year fixed mortgage rate rose to 5.54% as of July 21, up from 5.51% a week earlier. A year ago, the 30-year fixed mortgage rate averaged 2.78%.  

Even with increased wage growth, up 4.8% year-over-year for the private sector according to the Labor Department, people are actually making less, after accounting for inflation which hit 9.1% in June.

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Ratiu calculated the mortgage payments for a median-priced home on Realtor.com in June. For a home listed at around $450,000, with a 20% down payment and 30-year fixed mortgage rate, the mortgage rate came to about $2,100, which is a nearly 60% year-over-year jump, according to Ratiu. 

These skyrocketing costs are leaving many first-time buyers with an ever-shrinking set of housing options, and deepening the ongoing housing affordability crisis,” he said. 

A For Sale sign is displayed in front of a house in Washington, DC, on March 14, 2022.  (Photo by Stefani Reynolds/AFP via Getty Images / Getty Images)

For even more perspective, a household making $75,000 a year could afford 23% of homes listed on Realtor.com in June, according to Ratiu. In June 2018, that same household making $75,000 could afford 46% of homes listed on Realtor.com. 

Even if you jump up income brackets, Ratiu noticed the same trend. Households making $150,000 could afford 59% of the homes listed on the site last month, down from 78% in June 2018. 

We’re beginning to see the signs of a rebalancing in the market going forward.

– Realtor.com senior economist George Ratiu

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Existing home sales have declined for the past five months while new home sales have declined for six straight months, according to Realtor.com data. 

However, more homeowners are bringing their homes to the market, which is encouraging because the shortage of supply has been the main challenge, according to Ratiu. 

With interest rates so high, homes are also starting to linger on the market longer. 

“We’re beginning to see the signs of a rebalancing in the market going forward,” Ratiu said. 


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