Home affordability is nearly the worst on record as mortgage rates spike

Home prices are continuing to experience double-digit gains, and mortgage rates just hit their highest level since 2009. Almost all of the major housing markets in the United States are less affordable than they have been in the past.

Black Knight's new calculations show that almost all of the 100 biggest US housing markets are less affordable than their long-term levels. At the beginning of the Pandemic, that figure was at 6. Thirty-seven markets are less affordable than they have ever been.

Home price gains were up 19.9% in March, but they did pull back slightly. Home prices rose more than 2% in a single month for the fifth time since the beginning of the Pandemic. In the first three months of the year, prices are up. Consumers are grappling with rising prices across categories.

According to Mortgage News Daily, the average rate on the 30-year fixed started this year at 3.29% and hit 5.55% on Monday. Markets will get more commentary on the Fed's drive to curb inflation after Wednesday's Federal Reserve meeting.

Home buying affordability has not been as bad since July of 2006 when rates were around 6.05%. It took 34% of the median income to cover the mortgage payment for a home with a 20% down payment.

The payment-to-income ratio had reached 32.5% by April 21. The last two years have seen a cooling off of the housing market due to a ratio above 21%. The housing market has been affected by the Pandemic because demand is high and supply is low.

Home affordability would be the worst on record if rates were to rise just 50 basis points more or home prices were to rise just 5% more. The 5% increase in prices would be more likely.

Consumers don't buy the home price, they buy the monthly payment, according to the housing market. Since the beginning of the Pandemic, that payment has increased by $790, an increase of 75%, and is at a new high.

Consumers are turning to variable-rate mortgages because of the weaker affordability. Black Knight reported that the share of rate locks from potential homebuyers jumped from 2.5% in December to 8% in March. According to the Mortgage Bankers Association, that share was over 9% last week.