With rising interest rates, inventory shortages, and high buyer demands housing affordability is looking pretty grim. I wish we could say that things will soon be better, but according to the National Association of REALTORS, mortgage rates will reach 4.5% by the second half of 2018 while housing markets across America are seeing surges in home price as well as possible rises in property taxes. For people looking to buy a home this year, it’s going to be a challenge.
What’s Causing This Change in Housing Affordability?
Lack of Homes on the Market
It’s hard to pinpoint the exact cause of the issue because there are so many factors that come into play and markets are different from county to county or even just from neighborhood to neighborhood. One thing that real estate agents from across the nation are agreeing on is that right now the housing market is especially tight. Demand is fierce as fewer and fewer homes are being listed or built right now. The lack of inventory is leading to bidding wars, above listing price offers, and all around a whole lot of angst for buyers.
It’s no secret that America’s economy is shaky right now. The Federal Reserve is doing what they can to control inflation, but also bringing on a rise in interest rates. In fact, mortgage rates are the highest they’ve been in past four years. Even a slight shift in the interest rate can make a once affordable loan out of reach for most families. For a home priced at $250,000, if the mortgage rate increases by 0.5 percent, a monthly payment would go up by $70 and annually $840! Some real estate agents worry that if interest rates for home loans climb past 4.5 percent, there could be a significant decline in home sales in 2018.
In 2018, Housing Affordability is Especially Hard for Millennials
In places, like the Bay Area of California outrageously high housing costs have caused hardship for many people, especially those under the age of 40. Mortgage costs for millennials in this area– actually, let’s get real– Most millennials can’t afford to buy a house in the Bay Area, where the average price for a home in San Francisco is well over $1.2 million dollars. But bundle together rent payments, student loans, and high cost of living and they’re struggling to make ends meet. So forget buying a house for these millennials! At least in this area.
Real estate is local, which makes it hard to predict what your market will do this year. However, if current trends continue, we can expect to see property prices to continue to increase. If you’re looking to buy a home this year, look into programs that offer funding assistance, such as local grants and/or government-backed loans and check the latest mortgage rates online through LendingTree. Their site has the largest networks of lenders that will compete for your business.
Want more information about buying a home this Spring? Check out our free buyer’s guide. Download it here.