Yahoo Finance How much do you need to earn to afford a $500K home? The new hurdle is $152K, even as mortgage rates fall for the first time in weeks
Mortgage rates dropped this past week amid mixed economic data and uncertainty around the Fed’s upcoming decision to either raise interest rates again or take this month off.
“While the potential for another rate hike raises the prospect of increased mortgage rates, the objective of curbing inflation will ultimately lead to a decline in mortgage rates, bringing much-desired stability to the market,” says Realtor.com economist Jiayi Xu.
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Meanwhile, borrowers still contend with rates close to 7%, limiting the kind of home average families can afford.
Say you’re buying a $500,000 home. Assuming you have a 10% down payment and lock in a 30-year fixed mortgage at today’s average rate of 6.71%, you’d have to pay about $3,800 a month after property taxes and home insurance, according to estimates from Zillow.
Considering that most lenders want you to keep your housing expenses at or under 30% of your gross income, you’d need to earn at least $152,000 a year to afford that $500,000 home.
30-year fixed-rate mortgages
The average 30-year fixed rate slipped to 6.71% this week, according to the latest data from Freddie Mac, compared to last week’s average of 6.79%.
A year ago at this time, America’s most popular home loan averaged 5.23%.
“Even though the strong employment data suggests that households are in a favorable position to assess their housing options, the overarching concern of affordability continues to impose limitations on homebuyers,” says Xu.
Realtor.com reports the median listing price grew just 0.2% year-over-year — its slowest pace ever recorded (since 2016).
But “while the growth slowed to a halt, the homebuying costs haven’t come down.”
15-year fixed-rate mortgages
The average rate on a 15-year home loan also lowered from 6.18% to 6.07% this week. This time a year ago, the 15-year fixed-rate averaged 4.32%.
“While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers,” says Sam Khater, Freddie Mac’s chief economist.
New listings for sale have fallen 25% from last year — marking their lowest level of any early June on record — according to Redfin.
This has also driven the total number of homes on the market down 5% since a year ago to its lowest level on record for early June.
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Shortage for middle-income buyers
The U.S. housing crunch affects middle-income buyers more than any other income bracket — with a shortage of about 320,000 affordable homes, according to a report from the National Association of Realtors (NAR).
That’s any home priced at $256,000 or less, which NAR considers an affordable range for middle-income buyers, or households earning up to $75,000 a year.
Currently, middle-income buyers can afford less than a quarter of listings — compared to five years ago, when the group could afford to buy about half.
"Ongoing high housing costs and the scarcity of available homes continues to present budget challenges for many prospective buyers, and it's likely keeping some buyers in the rental market or on the sidelines and delaying their purchase until conditions improve," says Realtor.com chief economist Danielle Hale.
"Those who are able to overcome affordability constraints may be increasingly drawn to newly constructed homes or to the suburbs and beyond, both of which may offer buyers more realistic opportunities for homeownership in the near term."
Mortgage applications still declining
Demand for mortgages decreased 1.4% from last week, according to the Mortgage Bankers Association (MBA).
“Overall applications were more than 30% lower than a year ago, as borrowers continue to grapple with the higher rate environment,” says Joel Kan, vice president and deputy chief economist at the MBA.
“Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market, while there continues to be very little rate incentive for refinance borrowers.”
Refinance activity similarly fell by 1% — and is 42% lower than the same week a year ago.
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