Housing Market

EMEL AKAN is a senior reporter for The Epoch Times in Washington. Previously, she worked in the financial sector as an investment banker at JPMorgan. Emel Akan

Home Affordability Worsens

Mortgage payments are expected to be $800/month more than last year

The monthly mortgage payment for a typical home in the United States for new buyers has climbed by 45 percent or about $600 more than the previous year, according to the estimates by the National Association of Realtors (NAR).

In April, the average monthly mortgage payment for a single-family home increased to $1,900, based on a median home value of $391,200 with a 10 percent down payment and a 5 percent 30-year mortgage rate, according to an analysis by Gay Cororaton, NAR’s senior economist.

This is a significant jump from last year’s $1,300 average mortgage payment, Cororaton told Insight.

Estimates indicate that if the Federal Reserve continues with its projected rate hikes this year, monthly mortgage payments will be about $800 higher compared to last year, making homeownership much more challenging.

Rising home prices and mortgage rates are slowing down buyer demand, Cororaton noted.

“The risk right now is greater than it was a year ago, when the economy was still rising,” she said.

Given the heightened risk and uncertainty in the economy, people recognize that it’s not a good time to buy a property, Cororaton said. As a result, they continue to rent, driving up rental prices.

Mortgage rates have already risen in anticipation of Fed rate hikes. Compared to last year, the interest rate on a 30-year fixed-rate mortgage has increased from roughly 3 percent to 5 percent, representing the largest jump since the 1980s.

So far, the U.S. central bank has increased its benchmark rate by 75 basis points, bringing it to a range of 0.75–1 percent recently as part of its effort to combat persistently high inflation. Fed officials signaled that there would be a couple more rate hikes in the coming months.

According to Fed projections, interest rates are expected to rise to nearly 1.9 percent by the end of the year. If the Fed proceeds with additional rate hikes, mortgage rates might jump to 6 percent this year, according to the NAR’s estimates.

Cororaton forecasts that if a typical house price reaches $400,000 by December and mortgage rates hit 6 percent, the monthly mortgage payment will be $2,176 by the end of the year, which is about $800 higher than in 2021. This is an almost 60 percent jump from the previous year, she noted.

This analysis applies to existing home sales. New house sales would have even higher mortgage payments.

“New homes are more expensive than existing single-family homes, with a price difference of about $50,000,” Cororaton said, noting that mortgage payments for new homes may be a couple hundred dollars more than those for existing homes.

And this is one of the reasons why sales of new homes have slowed considerably this year.

In April, sales of new single-family homes in the United States fell for the fourth consecutive month, plummeting to a seasonally adjusted annual rate of 591,000, the lowest level since April 2020. The dip from March to April was 16.6 percent, much higher than the 2.4 percent drop in existing home sales.

Despite slowing demand and rising costs, real estate professionals believe house prices have room to rise further because of very tight inventory.

“The inventory is so scarce that it flies off the shelf right away the moment it shows up,” said Aleksandra Scepanovic, founder of the Ideal Properties Group, a brokerage firm in New York.

Scepanovic, who specializes in downtown Brooklyn and surrounding areas, told Insight that there’s a lot of pent-up interest from the time of the pandemic in purchasing homes, but some people are backing away because of growing costs.

Many choose to rent rather than own a home, and as a result, rental market prices have spiraled out of control, she said.

On top of that, the pipeline of new houses is diminishing, Scepanovic said, which isn’t helping to cool off house prices.

According to NAR, the median price of a house increased by 14.8 percent in April compared to the same month last year. The group anticipates that existing home sale prices will continue to rise, albeit at a slower rate of 10 percent by the end of the year, putting the American dream of homeownership out of reach for many.

Despite slowing demand and rising costs, real estate professionals believe house prices have room to rise further because of very tight inventory.