‘The savings and income needed to qualify for a home loan have skyrocketed’: Five ways that left the housing market for buyers in the dust — and it’s not over yet

The housing market is finally starting to take a breather after a two-year race. A new report explains how the frenzy broke out.

The report, called the State of the Nation 2022 by the Harvard Joint Center for Housing Studies, reveals the sharp rise in costs associated with owning or renting a home, and how competition has intensified among buyers.

With median home prices exceeding $400,000, owning a home is becoming less expensive for the average potential buyer.

The average national listing price for active listings was $447,000 in May 2022, a 17.6% increase over last year, and a 35.4% increase versus May 2020, according to Realtor.com.

In order to purchase an average price home, a buyer would have to pay more than 38% of their income, according to the Atlanta Federal Reserve Board’s Home Ownership Monitor.

About 67 of the 100 largest housing markets saw high appreciation rates at some point in the past year, the report said.

Home prices set new records

This environment is likely to continue for some time, given how tight inventory is. In May, homes stayed on the market for an average of only 16 days, the lowest number on record, according to the National Association of Realtors.

“Unlike the previous rally when loose credit and speculative buying fueled the housing bubble, the current rise in home prices largely reflects years of no building,” the report explained.

Supply chain restrictions, labor shortages, and regulatory restrictions stifling home builders are all responsible for the slow pace of new construction.

Housing prices and apartment rents have risen

Rent has also become less expensive. The Harvard report’s authors stated that “the cost of both owner-occupied and rented housing continues to rise.”

Rents are up 12% nationwide in the first quarter of this year, and even higher in some metro areas.

Although rents have fallen in major cities like New York during the pandemic, the recovery amid the return to work environment has been sharp. In the first quarter of 2022, apartment rents in New York City were up 20% compared to the previous year.

Single-family home rents rose even faster, by 14% in March 2022 compared to the previous month.

Growth in demand for apartments versus supply

The demand for rental units has already increased in the past year.

The report stated that “a number of temporary factors helped increase the demand for rents in 2021.”

“Federal monetary support, student loan deferrals, and increased employment likely boosted the incomes of many young people enough that they could form their own households,” the authors stated.

Other government interventions protect millions of renters [who were] Behind their rents of eviction. The high prices and low supply of homes for sale also played a role in increasing demand by keeping many potential buyers in rental housing.”

The share of investors in home purchases has increased

Part of the pressure in both markets comes from the increasing share of investors in the rental market.

The report, citing CoreLogic data, indicated that the share of investors in the sale of single-family homes in the first quarter of this year was 28%. Between 2017 and 2019, the share of investors in the sale of single-family homes was on average 16%.

The report stated that investors focused on the south and west. In the fourth quarter of 2021, the highest share of home sales for investors was recorded in Atlanta, at 41%, followed by San Jose at 38%, and Phoenix and Las Vegas at 36%.

To make matters worse, investors are targeting low-priced homes, outpacing first-time buyers.

“In September 2021, investors bought 29% of homes sold that were in the bottom third of the metro area’s sales price, compared to 23% of homes sold in the top third,” the report stated. “Investor-owned homes are typically converted from owner-occupied units to rental units or upgraded to resale at a higher price.”

Mortgage payments are on the rise

A Harvard report estimates that payments for a median-priced home have risen by more than $600 per month.

As part of its efforts to combat rising inflation, the Federal Reserve raised interest rates, causing mortgage rates to rise sharply. The average 30-year fixed rate mortgage rate has exceeded 6%, according to Daily Mortgage News.

“As prices continued to rise along with interest rates, the savings and income needed to qualify for a home loan rose, adding to the financial hurdles for first-time and middle-income buyers,” the report stated.

It’s an expensive proposition to own a home under current conditions: If you’re a first-time buyer and put a 7% down payment on a median-priced home, that could be up to $27,500 in April 2022, the report said. .

This amount alone “excludes 92% of renters with an average savings of just $1,500,” the authors added.

For a mid-priced home, the minimum annual income required to withstand steep down payments increases from $79,600 in April 2021 to $107,600 in April 2022.

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