In April 2022, the Real House Price Index (RHPI) jumped up by 45.6 percent compared with a year ago, accelerating faster than any other point in the 30-year history of the series.
This rapid annual decline in affordability was driven by two factors: a 21.2 percent annual increase in nominal house prices and a 1.9 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago. “The pandemic-driven supply and demand imbalance that fueled historically strong house price appreciation is coming to an end as the housing market rebalances to a new normal.” For home buyers, there are few options to mitigate the loss of affordability caused by the increase in mortgage rates and home prices. One way to offset the decline in affordability is with an equivalent, if not greater, increase in household income. Household income increased 5.0 percent since April 2021 and boosted consumer house-buying power, but even the strong year-over-year income growth was not enough to offset the affordability loss from higher rates and fast-rising nominal prices. Alternatively, another option for home buyers to mitigate the loss of affordability is to switch to an adjustable-rate mortgage with a lower rate than the fixed-rate benchmark. In fact, the share of adjustable-rate mortgages relative to fixed-rate mortgages has grown as mortgage rates have increased in recent months. In April, affordability on both a year-over-year and month-over-month basis declined at its fastest pace in the series’ history. However, real estate is local and house-buying power and nominal house prices vary by city, so it’s helpful to know where affordability is declining the most and the least
Source: First American