The recent double-whammy of rising home prices and quickly rising interest rates has created a drop in home sales. The Federal Reserve Bank of Atlanta created the (HOAM) Index, which tracks the ability of a median-income household to afford a median-priced home. The index uses median home price, median income, prevailing interest rate, median monthly principal and interest (P&I) payment, total median monthly payment (including P&I, taxes, insurance, and private mortgage insurance [PMI]), and annual total payment share of median income. “Affordability” is defined using the HUD threshold of total housing payment staying under 30% of income. It’s very interesting to track the changes and the factors behind those changes over the last 15+ years. Found via .
As you can see, we are back at the lowest level of home affordability since the 2007 housing bubble period. However, the (?) argues that since most existing homeowners have a low-interest, fixed-rate mortgage, there won’t be much forced selling or steep price drops in the near future.
The Atlanta Fed also points out several other home affordability tracking sites, including the . Their report points out that while the average monthly payment required has risen significantly, there is also a historically high amount of housing under construction (after a big slowdown after 2007).
I do believe that home affordability will eventually rebound, but there are several ways that could work out. More housing supply and/or reduced affordability could reduce prices, incomes could rise (or at least incomes could rise with inflation while housing prices stay flat), or interest rates could go back down due to a recession that calms inflationary pressures.
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