- The average US fixed rate for a 30-year mortgage passed 4% this week for the first time since May 2019.
- That's as house price increases have outpaced wage growth in most of the US.
- Home prices in popular markets like Phoenix, AZ are increasing faster than wages.
As mortgage rates spike to a pandemic high, home prices are rising faster than people can make money to pay for them.
According to Freddie Mac, the average US fixed rate for a 30-year mortgage rose to 4.16% this week. That's a far cry from this time last year, when borrowers offered rates as low as 3.09%. Fueled by the Federal Reserve's interest rate hike announced Wednesday, experts predict mortgage rates are likely to continue rising through the end of the year.
That's on the heels of median-priced single-family homes in the US growing less affordable. Homes became more expensive between October and December of last year, in comparison to the same period in 2020, according to property data provider ATTOM. Cities surging in popularity have grown particularly less affordable, while markets in larger cities have eased.
In increasingly hot markets such as Miami-Dade County, FL and Phoenix, AZ, home prices are rising at a rate wage growth can't compete with. Maricopa County, which contains Phoenix, for example, saw its affordability decrease by 21% in the last year, ATTOM estimates, based on wage and median home price increases.
During this period, the affordability of Hillsborough County, FL, which contains Tampa, also decreased by 21%; Clark County, NV, which contains Las Vegas, by 19%; and Middlesex County, MA, which includes territory outside of Boston, by 29%.
There's good news, however, if you're looking to live in large cities — Los Angeles, Chicago, Brooklyn, and Seattle's King County were among the 22% of counties where wage growth surpassed home price growth. Manhattan, Chicago, and Fairfax County, VA (outside of Washington, D.C.) were all more affordable than their historic averages.
This is the least affordable that American homes have been in 13 years, according to ATTOM.
At the end of 2020, median-priced single-family homes were more expensive than historically typical in only 39% of the country, the report found, with that share nearly doubling since. The researchers looked at 575 counties for their report, finding that roughly a quarter of them had housing markets that were more affordable than their historical averages (23%), a steep drop from 61% in the fourth quarter of 2020.
The median national home price increased 17% over the past year, the report found, to a record high of $317,500.
The researchers found that major home ownership costs on median-priced homes remain within "the financial means of average workers," but that the number of counties where affordability is worse than their historical averages is the highest it's been since the 2008 housing crash.
Ownership costs are eating up more of the average American's cash than usual, with average costs taking up 25.2% of the average national wage of $65,546 in the fourth quarter of 2021. That's up from 21.5% last year.
The market will get worse through 2023
The pandemic is expected to permanently raise the floor for US home prices. In November, Fannie Mae predicted that the median price of a previously owned home would surpass $400,000 by the middle of 2023, and likely hit a record high of $464,000 by the end of 2023, roughly $100,000 higher than it was at the start of this year.
And the spiking mortgage rates aren't likely to help. Federal Reserve Chair Jerome Powell told Congress earlier this month that he approved of increasing rates to curb growing inflation, but Bank of America predicts that they won't be enough to stop the housing market from reporting strong growth through 2022. BoA says that US home prices will finish 10% higher at the end of the year than at the start, almost double the average annual home price growth seen since 1989.
ATTOM Chief Product Officer Todd Teta told Insider that rising home prices will likely continue, "and continue to outweigh the benefits of wage gains and low interest rates — at least in the very near future."