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© National Association of REALTORS®
Though growth in home prices is slowing, a nationwide decline is unlikely, Lawrence Yun, chief economist for the National Association of REALTORS®, testified Thursday on Capitol Hill. Yun told the Senate Committee on Banking, Housing and Urban Affairs that while the potential for weaker sales may help increase housing inventory in some markets, it won’t be enough to ease affordability constraints. Yun focused specifically on the lingering effects of COVID-19 on the market, decades of underinvestment and underdevelopment, and fluctuations in mortgage rates.
“In the near term, I do not expect the situation to change appreciably,” Yun said at the hearing. “Historic undersupply in the market, combined with continued demand, will likely drive ongoing issues with affordability for many Americans. Any short-term price adjustments, if they occur, will be less consequential compared to the immense longer-term housing affordability challenges we face as a country.”
Thursday’s hearing came as the nation continues to confront a deficit of 6 million housing units, according to research commissioned by NAR last year. This decades-in-the-making phenomenon has helped sustain year-over-year price growth for a record 124 consecutive months, NAR’s latest housing report shows.
Yun also noted the impact of rising mortgage rates and the lingering effects of COVID-19 on the nation’s broader economy. “When the Federal Reserve essentially went all-in in the early months of the pandemic, the decline in mortgage rates and the cautious reopening of the economy boosted housing demand,” Yun said. “The housing market always responds to changes in mortgage rates.”
Interest rates, which had been consistently in the 4% to 5% range in the decade preceding COVID-19, hovered near record lows of around 3% throughout much of 2020 and 2021. This week, NAR reported that the average commitment rate for a 30-year fixed-rate mortgage was up to 5.52%. “Any increases in available inventory observed over the first half of this year have been offset by the corresponding increases in consumer costs,” Yun said, explaining that rate increases of roughly 2.5 percentage points have added about $800 per month to a median-priced house payment.
Yun highlighted what these rate increases mean to potential buyers, even for homes priced on the lower end of the market. The monthly mortgage payment for a $200,000 loan with a 3% rate would be $843, he said, while the same mortgage at today’s rate of 5.5% would translate to a monthly payment of $1,136.
“So, the same loan amount for the same house would require an additional $293 each month,” he said. “Some would-be buyers simply no longer want to pay that amount, or they are no longer able to do so. This affordability crunch is felt most acutely as we move down the income scale and by minority households, given the current income distribution in America. That is why housing supply must be addressed to moderate gains in home prices and rents.”