When it comes to homeowner affordability, there are two key factors that play into how affordable housing is for buyers: home prices and interest rates.
Surprisingly, home values throughout the COVID-19 pandemic have stayed stubbornly high. In fact, the most recent readings of real estate appreciation through the month of March show year-over-year numbers greater than 4%.
Appreciation in the real estate market has stayed fairly consistent, but what has gone on sale are mortgage interest rates. If we look back over the last five decades, we see this trend play out.
Housing prices have stayed stubbornly high because of demand continuing to exceed the amount of new homes being built. And as the demand for housing has certainly slowed down over the last few months as we’ve had stay-at-home orders, so has the number of homes being built. These supply and demand dynamics are such that we still have a supply shortage that is supporting steadily increasing home prices.
However, what’s making housing affordable for most Americans are the near-record low interest rates. Low interest rates mean lower monthly payments. Combine this with the fact that average household income has been steadily increasing since 2010 and you have an environment where housing in America is more affordable than it has been in decades.
Conclusion
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