By the end of this year, affordability in the U.S. housing market could be at its worst point in decades according to the latest edition of the Housing and Mortgage Market Review (HaMMR) published by Arch Mortgage Insurance Company on Thursday.
“If mortgage rates and home prices continue to rise as expected, affordability will get hammered by year-end as demand continues to outstrip supply,” said Ralph DeFranco, Global Chief Economist, Mortgage Services at Arch Capital Services Inc. “A strong U.S. economy combined with a housing shortage in many markets means that there is little hope of any price drop for buyers. Whether someone is looking to upgrade or purchase their first home, the window to buy before rates jump again is probably closing fast.”
The report paints a bleak picture for homebuyers of a housing market that could be defined by “the worst full-year deteriorations in affordability in the past 25 years.”
According to the report, U.S. housing got 5 percent less affordable in the first quarter of 2018. At the same time, Fed rate hikes increased and could raise monthly mortgage payments needed for home purchases by another 10 to 15 percent by the end of the year.
Affordability is expected to decline the fastest in Tacoma, Fresno, Baltimore, and Boston, the report indicated.
On top of increasingly pricey locations and rising rates, Arch reported that new tariffs will likely lead to slightly higher construction costs. Tariffs could also bump the costs of making steel, aluminum, and “final consumer goods” inside and outside the U.S. However, the reported indicated, the shifting economics of materials should not itself put much of a dent in the housing market overall.
“Steel frames account for only a small percentage of new single-family houses, making the tariffs’ direct impact on the total cost of a new home relatively minor,” the report stated.
For homeowners, the news about ever-rising home prices is good news, of course. Arch reported that, based on leading housing market indicators, the average probability of experiencing home price declines remains unusually low, at 5 percent. Add to that, the shortage of homes for sale means that the likelihood of local housing busts, or even mild price declines, over the next two years is near historic lows.
This, the report concluded, “reflects a broad array of favorable fundamentals, such as a healthy job market, relatively low interest rates, and home prices in line with incomes compared to their historical norms, at least in the majority of American cities.”