Who's Buying?

The pandemic boom of buying and selling seems to be stagnating, and home builders are bracing for a possible recession. With these factors, and inconsistent mortgage rates, buyers will have an even harder time getting their foot in the door of the housing market. In reality, some may be priced out completely. 

According to a new Global Ratings report by the S&P, 40% of would-be buyers were forced out of the market with the recent increase in mortgage rates. The jump simply made it impossible for them to buy their starter homes: they can no longer afford it. The report also predicts that by the end of 2025, that percentage could jump to 60%. 

The study looked at household incomes and the portion of total income that goes toward mortgages. For example, the ratings report came to the conclusion that “affordability” is reached when only 25% of a household’s income goes towards their mortgage. For lower income households, this is unattainable given current sales prices and mortgage rates. 

Specifically, the bottom one-fifth bracket (which is households making up to $27,000 a year), would need to spend at least 100% of their income to afford a monthly mortgage payment, according to the report. This is a result of rising home prices. When the average median price is $450,000, a huge portion of the population is priced out of buying. 

This could paint a potentially dire affordability picture in the future. But experts aren’t giving up hope, yet. 

“There’s no question that affordability is a lot more challenged this year than last year, and prepandemic,” says Buck Horne, housing sector analyst at Raymond James. “It certainly doesn’t mean the American dream of homeownership is dead.” Horne suggests that due to the increase in remote work options, buyers can “solve for affordability with their feet,” by moving to less expensive areas, or to opt for adjustable rate mortgages.