Today’s housing market is witnessing tight inventories, high prices and tighter credit requirements, making homes less affordable for Americans. The proof can be found in the pudding, or more specifically, in the U.S. mortgage applications report from The Mortgage Bankers Association (MBA) and in the home price report from the National Association of Realtors (NAR).
Applications for U.S. home mortgages dropped 2 percent to 397.2 as purchase and refinancing application decreased the week of February 7th. The index recorded its lowest level since December 2000 at the end of last year. The MBA’s refinancing index reported a .2 percent drop while loan requests for home purchases dropped 5 percent. Some analysts attribute the drop in applications to the extreme winter weather much of the country has experienced but the data points to the theory of home affordability dropping.
NAR recently released its data showing home prices increase 10.1 percent year-over-year in the fourth quarter of 2013. The third quarter of 2013 reported 12.5 percent year-over year gains. NAR chief economist Lawrence Yun in a release stated, “The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending. At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.” Although home prices have pulled back some, affordability is still waning.
Interest rates might also be playing a hand in this situation. Income levels have remained flat while interest rates have crept upward. The expensive home prices, caused in part to lack of supply and higher rates, have knocked out several potential buyers from the market. As rates increase, the amount of house one can afford drops, leading to issues of affordability. “Pricing is still reacting to demand outstripping supply, and until we see an increase in inventory, you’re going to continue to see price increases that will be higher than what has been anticipated,” said Richard Smith, CEO of Realogy.
Housing supply has been impacted by the harsh winter weather touching most of the country in the past several weeks. Builders can’t build new homes in these harsh conditions which keep the supply tight and buyers don’t want to venture out in these conditions to shop. Once the weather warms up, the market could experience pent-up sellers looking to buy which would be reassuring of the housing market recovery.
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