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Anyone looking to venture into the housing market was hit with another jump in mortgage rates last week. This means that returning to any semblance of housing affordability is a long-term opportunity for now.

The recent rise in mortgage rates combined with the 10-year Treasury yield is one of the reasons why the affordability of homes is a hot topic again. Economists and analysts often talk about affordability, but there is no one central way to measure it. Most measures take home prices, mortgage rates, and average incomes into account.

The obstacles to home ownership were through housing costs relative to income a topic of conversation Even before the pandemic, but buying a home back then seems totally fun in hindsight. “For home affordability to return to pre-pandemic levels, mortgage rates must fall to 4%, incomes must rapidly rise by 30%, and home prices must fall,” Lawrence Yun, chief economist for the National Association of Realtors, said in a statement. homes by 30%. to Barron. “All of these, individually and collectively, are not unlikely scenarios.”

Home affordability indices released earlier this month by two separate trade groups hit record or near-record lows in the second quarter, pointing to a difficult home-buying environment.

And this quarter does not look promising: weekly

Redfin

A measure of tracking home sale prices on a four-week rolling basis has risen above year-ago levels for five consecutive weeks, while mortgage rates last week hit their highest level in more than 20 years, according to

Freddie Mac
.

Buying a home was already difficult before mortgage rates climbed above 7%. Record share of respondents to

Fannie Mae

A July 82 percent survey that measures housing market sentiment said it was a bad time to buy a home. “Unsurprisingly, consumers attribute the difficult conditions to rising home prices and unfavorable mortgage rates,” Fannie Mae chief economist Doug Duncan said in a statement.

In fact, assuming a 20% down payment on a $400,000 home, a home buyer with the average mortgage rate at Freddie Mac last week would owe about $400 more per month than the same week last year.

Compared to the 2019 median price, at just under 4%, such a buyer would owe an additional $600. And that’s before accounting for the impact of the price hike, which as of May was nearly 46% higher than the same month in 2019, according to S&P CoreLogic Case-Shiller.

The lack of supply of homes for sale is likely a contributing factor to the dampening sentiment for buyers: “Demand has been hit by affordability headwinds, but low inventory remains the root cause of stalled home sales,” said Sam Khater, chief economist at Freddie Mac, finally. week.

These headwinds may have affected existing home sales in July. Consensus ratings compiled by

fact set

We expect previously owned homes sold at a seasonally adjusted annual rate of about 4.14 million in July, down from 4.16 million in June. New home sales, a measure of contract signings for the purchase of newly built homes, are expected to rise slightly, to 701K. Data for both are expected on Tuesday and Wednesday, respectively.

Consensus estimates for August are not yet available, but the leading data does paint a promising picture: The Mortgage Bankers Association index that tracks home loan application volume hovered less than 4% above record lows in the first two weeks of the month.

A team of Goldman Sachs analysts wrote in a note earlier this week that unfavorable conditions in the sales market could push potential buyers toward renting — particularly in Southeast markets where a large number of rental units are under construction. “While the affordability of rent is also challenging in absolute terms, the stark deterioration in mortgage affordability has made rent even more urgent for potential homeowners,” they said.

With so much pessimism about it when it comes to current home buying conditions, one has to wonder: How bad can the headwinds get from here? Affordability looks set to improve over the next few years, says Selma Heap, chief economist at CoreLogic — even if it remains more challenging than before the pandemic.

Hepp says she expects home prices to stagnate over the next several years, reducing some headwinds, while new construction provides supply and wages increase. “We have now gone through the biggest shock of losing affordability,” said Heap. Barron. “We’ve been through the worst of it, and now it’s about income growth” and housing price readjustments, she said.

Write to Shaina Mishkin at [email protected]