iStock illustration
A new Zillow analysis suggests American home prices would have to fall almost 25 percent to return to recent affordability norms – something the company’s researchers suggested is so unlikely that buyers “may need to reset their expectations.”
With Americans’ median monthly mortgage payment now $1,850, or 75.5 percent above where it was in 2021, thanks to rapid jumps in home prices and mortgage rates, the median household with that mortgage would have to spend 30.2 percent of their income on it to keep up. That’s in stark contrast to the 22.8 percent average Zillow calculated for the 2005-2021 period. And to bring affordability back down to that level, if mortgage rates held at 6.5 percent the median national home price would have to fall 24.7 percent, the Zillow researchers said. It also raises the specter of a so-called “mortgage rate lock-in” for future home-sales seasons, where rates are so high that most sellers feel they can’t afford to move.
“The next several years appear set up for affordability to be a major challenge for home buyers,” Zillow senior economist Nicole Bachaud said in a statement. “Inventory remains tight, real income growth is dismal, mortgage rates show no signs of dropping, and there is plenty of pent-up demand ready to bid prices back up if they reach a level would-be buyers can once again afford. Filling the housing deficit continues to be the key to long-term affordability, but the recent slowdown in single-family construction is not a good sign that the market is getting closer to building enough to meet demand.”
Greater Boston homebuyers have a complicated position relative to the national trend. Over the last 15 or so years, area homeowners have paid 32.2 percent of their income towards their mortgages on average, skating perilously past the 30 percent mark that signifies a family is “housing-burdened.” Area home prices have risen so far, Zillow calculated that a 15.1 percent decline would only bring the median monthly mortgage payment – assuming a 6.5 percent mortgage rate – back in line with that historical affordability average.
September’s inventory and numbers of new single-family listings were down 16.6 percent year-over-year, the Massachusetts Association of Realtors reported this week, with new condominium listings down 22.8 percent. September single-family inventory was down 22 percent to 6,816, while condo inventory was down 30.8 percent to 3,208. The single-family market had 1.6 months of supply, while the condo market had 1.7 months of supply, putting a big drop in home prices seemingly far away.
