The typical American household would now have to spend 31% of their monthly income to make a mortgage payment on the average-priced U.S. home. That’s up from 24% in December – And averaged 19.9% during the 2010s decade. The last time this measurement topped 31% was September 2007.
The spike in interest rates over the past few weeks has dramatically increased mortgage payments for new homebuyers. In December, the average 30-year fixed mortgage rate stood at 3.11%. A borrower taking on a $500,000 mortgage at that rate would owe $2,138 per month. Now that the average rate is at 5%, that loan today would cost $2,684 per month.
Many new homebuyers are getting stretched financially in a way that resembles buyers during the last housing bubble – But that’s just new homebuyers. If we look broadly at homeowners, they are financially strong. This time around, family financials look healthier, and a significant percentage of homeowners have fully paid off their mortgages. Excessive borrowing doesn’t appear to be driving the strong housing market. Overall, homeowners appear to be in a good position to ride out an economic softening.
Higher mortgage rates may be a benefit for housing by allowing inventory levels to increase which will soften appreciation. Low or no home value appreciation for a time period can allow income to catch up with home prices – and avoid a major price correction.
CoreLogic put housing markets into one of five categories based on the likelihood that home prices in that particular market are to fall over the coming 12 months. Here are those groupings:
- Elevated: Over 40% chance of a price dip
- High: 30–40% chance
- Medium: 20–30% chance
- Low: 10–20% chance
- Very Low: 0–10% chance
Among the 392 regional housing markets that CoreLogic measured, it puts 86% into the “very low” or “low” likelihood of a price decline. It put 10% of markets into the “medium” grouping, and 1% in the “high” grouping. Meanwhile, CoreLogic places only 2% of markets into the “elevated” group. In case you are wondering, the Los Angeles/Orange County real estate market is rated low for a price decline by CoreLogic.
Even in the face of soaring mortgage rates, CoreLogic still thinks the chances of prices declining in 2022 are fairly low. The real estate research firm points to the mismatch between inventory and strong buyer demand. However, that doesn’t mean CoreLogic views the ongoing housing market boom as healthy.
CoreLogic also calculated whether local income levels could support local home prices. CoreLogic says 65% of U.S. regional housing markets are “overvalued.” That includes every major market in states like Arizona, Florida, and Texas. Just 9% of regional housing markets are what CoreLogic deems “undervalued”; 26% get its “normal” label.
Not long after the strict COVID-19 lockdowns let up in 2020, the housing market began to boom. Economists at the time weren’t worried. In their eyes, the demographic wave of first-time millennial homebuyers, the influx of work-from-home buyers, and low mortgage rates all supported the price boom. In recent months, however, their tune has shifted. In March, researchers at the Federal Reserve Bank of Dallas published a paper warning that a housing bubble could be brewing. Meanwhile, last week housing economist George Ratiu proclaimed that “we’re not in a housing bubble just yet – but we’re skating close to one if prices continue rising at the current pace.”
Many economic analysts feel rising mortgage rates may be good overall for the market, and temper price increases, allowing the market to avoid a major price correction. Higher interest rates, which price a percentage of homebuyers out of the market, may allow inventory levels to increase, easing or plateauing home prices. Even with 30 year fixed interest rates now topping 5%, this is still historically low. As recent as 1989, 30 year fixed rates were at 10%. And just over 20 years ago in 2001, interest rates were at 7% – and hovered between 5.5% and 6.5% until just the past 5 years.
This summer can be the best time to cash in on today’s high home prices. You may be able to take your first $500,000 of profit Tax Free when selling your home! Give me a call, and I can share the difference between taxable profit, and your net equity. You may be taking more tax-free cash with you than you thought. You can reach me direct at 800-944-2441 or email: Cary@Cary4Homes.com.
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Call Cary directly at 800-944-2441 or email Cary at: Cary@Cary4Homes.com. We can review your best options to insure you receive the most profit when selling.
The call, just like our concierge loan service, costs you nothing. And of course our conversations are always confidential. Let’s talk soon.
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