IYR - Affordability Of U.S. New Homes Reaches Record Low With Mortgage Rate Hikes
Summary
- After taking a breather last month, the affordability of the typical new home sold in the U.S. nose-dived in September 2022.
- At an initial estimate of 43.6% for September 2022's median household income, the cost of owning a typical new home has never been higher for a typical American household.
- Although the post-pandemic recession rise of new home prices is slowing, mortgage rates reached over the 7% threshold in October 2022.
After taking a breather last month, the affordability of the typical new home sold in the U.S. nose-dived in September 2022.
That negative change is a consequence of two main factors. First, the price of a median new home spiked up about 8% to an initial estimate of $470,600 in September 2022, the second-highest figure on record (July 2022's $479,800 is the current record-holder).
The second factor is the surge of mortgage rates in September 2022. The interest rate for a 30-year conventional mortgage jumped from an average of 5.22% in August to 6.11%. The following chart shows the combined effect of these two factors, as measured by the percentage of a typical American household's monthly income would have to go to pay a mortgage payment on the typical new home sold.
At an initial estimate of 43.6% for September 2022's median household income, the cost of owning a typical new home has never been higher for a typical American household. That's also true in terms of raw affordability, where the median household income would only cover 17.1% of the sale price of the median new home sold in September 2022.
But the spike in ownership cost for a new home may not be over yet. Although the post-pandemic recession rise of new home prices is slowing , mortgage rates reached over the 7% threshold in October 2022. Unless the median price of new homes falls because of crashing demand as some observers anticipate , next month could see another new low in their relative affordability.
References
U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [ Excel Spreadsheet ]. Accessed 26 October 2022.
U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [ Excel Spreadsheet ]. Accessed 26 October 2022.
Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [ Online Database ]. Accessed 26 October 2022.
Political Calculations. Median Household Income in September 2022. [ Online Article ]. 1 November 2022.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Affordability Of U.S. New Homes Reaches Record Low With Mortgage Rate Hikes