Housing-affordability index falls to lowest level since 2006

On a national basis, homebuying was relatively affordable in 2020 and last year thanks to record-low mortgage rates, even as strong demand caused home prices to skyrocket. But this year, mortgage rates have risen sharply and Home prices hit new highs nationwide.

Chief economist Mark Fleming said, “I don’t know if we’ll ever see affordability again like what we saw in the last year or two.”

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drop in potency makes it Particularly difficult for first time home buyers To enter the market, economists say. Homeownership has long been a major wealth-building route for the American middle class.

Normal monthly mortgage payments rose to $1,842 in May, NAR said, up from $1,297 in January and $1,220 in May 2021, assuming a 30-year fixed-rate mortgage and a 20% down payment.

Mortgage rates have dropped over the past two weeks. But affordability is likely to worsen in the coming months as home price growth is expected to outpace income growth, said Lawrence Yoon, chief economist at NAR.

The housing market has cooled down Buyers have pulled out of the market in recent weeks. Sales of previously owned homes declined for the fourth straight month in May. Real estate agents say some buyers may no longer qualify for a mortgage, while others are unwilling to pay hundreds of dollars more a month than they budgeted a few months ago.

The sudden drop in demand is expected to lead to slower home price growth through the end of the year, and some economists are predicting a drop in prices.

“We’re in a housing-affordable crisis right now,” said Robert Dietz, chief economist for the National Association of Home Builders.

More sellers have cut prices in recent weeks, especially in housing markets, which have posted some of the sharpest price increases in recent years, including in Boise, Idaho; Phoenix; and Austin, Texas, according to real estate brokerages

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Nationwide, however, many economists say that home prices may continue to rise as inventories of homes for sale generally remain low. According to Realtor.com, the number of active listings in June was down 34% from June 2020 and 53% from June 2019.

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The Wall Street Journal’s parent operates Realtor.com.

Dalton and Lacey Lyon first noticed a market slump while shopping for a home near Denver. He began a home search in April and made five offers at list price but lost out to other bidders.

By the time they found a three-bedroom home with an unfinished basement in Castle Rock, Colo., in June, the competition in the market had subsided. The seller accepted their offer at an asking price of $555,000 and agreed to pay $2,500 for their closing costs.

But a less competitive market didn’t mean cheaper. Lyons had to reduce its budget as mortgage rates climbed.

“We are very excited,” said Mr. Leon. But “the really disappointing thing is that if we were shopping six months ago, the way rates were, we would be looking at like a $700,000 house.”

The mortgage-finance company said the average rate on 30-year fixed-rate mortgages was 5.3% this week.

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This was down sharply from last week’s 5.7% but 2.9% a year ago.

Mortgage-interest rates have largely remained below 5% since the 2007-09 recession. In recent years, several millennium Have aged in their prime homebuying yearsand the covid-19 pandemic has increased where many americans want to live, second home demand increased during the pandemicand investors There is a rush in the market to buy a house for rent Because rent prices have gone up.

Jason Roberts began shopping for his first home in Sacramento, California earlier this year and was quoted a 3.75% mortgage rate. He made offers on two homes before deciding to walk away from home search in April as mortgage rates climbed closer to 6%.

“Now you have higher prices and higher rates,” he said. “I want to buy, but the market is just prohibitively expensive.”

write to Nicole Friedman et nicole.friedman@wsj.com