Housing prices have skyrocketed preventing a large swath of Americans from buying a home.
U.S. home prices have risen 42% since the start of the pandemic and 9% of that just in the last 5 months. While great for existing homeowners, new buyers purchasing an averaged-price home will end up with a mortgage payment that is $600 more than it would have been before the current upswing in prices, according to a report from Black Knight.
The report also looked at another key contributing factor to home prices and affordability – record-low for-sale inventories. Despite seeing a rise of 27,500 from March to April, active listings remain 67% below pre-pandemic levels, with 820,000 fewer listings than would be typical at this point in most homebuying seasons. New listing volumes were up 1% from the same time last year, but remained 11% below pre-pandemic levels for the month of April, suggesting that the number of homes hitting the market remains well below what would be considered “normal” levels.
The continued lack of supply continues to weigh on home sales and keep prices higher than they might otherwise be given current affordability metrics. In recent years, a 20.5% payment-to-income ratio has been a rough tipping point at which appreciation begins to soften, but given the severity of inventory shortages, home prices continue to rise – even as that ratio has climbed to 33.7%, just shy of the 34.1% high reached in July 2006.
“There’s another side to this story, though; one of significant equity growth among current homeowners. With the average-priced home up 42% in value since the start of the pandemic, current homeowners with mortgages are sitting on an average $207,000 in equity that they could choose to tap while still keeping a 20% equity buffer in place. That’s a result of an astonishing $1.2 trillion gain in tappable equity in the first quarter of 2022 alone – the largest such quarterly growth ever recorded. In total, American mortgage holders have more than $11 trillion in tappable equity, also a history-making total. It really is a bifurcated landscape – one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own and have seen their housing wealth rise substantially over the last couple of years. Depending upon where you stand, this could be the best or worst of all possible markets.”
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