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Affordability continues to fall as year comes to a close

January 5, 2018

Even as the housing market cooled down at the end of fall and into the start of winter, it remained far busier than it was at the same time in 2016, and that's a trend that's likely to keep up well into 2018. With that in mind, and also taking into account the fact that mortgage rates are now on the rise, it seems affordability is beginning to decline sharply. Consequently, it's important for consumers who are thinking of buying a home in the near future to consider the ways in which they may be able to get into the market sooner than later.

"Home prices rose 6.2% in October."

In October - the latest month for which data is available - the average U.S. home price rose 6.2 percent on a year-over-year basis, up from the 6.1 percent increase seen in September, according to the latest Case-Shiller U.S. National Home Price NSA Index from S&P and CoreLogic. Both the 10 and 20 largest cities in the U.S. saw similar trends over the same period.

Meanwhile, prices were up 0.7 percent on a seasonally adjusted basis between October and September for the national, 10-city and 20-city indices, the report said.

"Home prices continue their climb supported by low inventories and increasing sales," said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. "Sales of existing homes dropped 6.1 percent from March through September; they have since rebounded 8.4 percent in November. Inventories measured by months-supply of homes for sale dropped from the tight level of 4.2 months last summer to only 3.4 months in November."

Blitzer further noted that prices were rising at three times the level of inflation, likely making it more difficult for consumers to afford homes at those prices.

Mortgage rates on the rise
More recently, mortgage rates started their inevitable ascent in December in response to the Federal Reserve raising basis interest rates, and that trend continued in the week ending Dec. 21, according to the latest Primary Mortgage Market Survey from Freddie Mac. Rates on 30-year fixed mortgages ticked up to 3.94 percent from the 3.93 percent seen in the previous seven-day period. Meanwhile, those for 15-year FRMs climbed to 3.38 percent from 3.36 percent over the same span.

However, while both these types of rates were up slightly, they were still well below where they stood in the same week a year earlier, the report said.

Consumers reacting
Though rates are still near historic affordability, increases seem to be scaring consumers off from getting into the market in the week ending Dec. 15, according to the latest data from the Mortgage Bankers Association. Mortgage application activity slid 4.9 percent on a seasonally adjusted basis from the previous week, as purchase requests dipped 6 percent, and those for refinances fell 3 percent.

As a consequence of these changes, refinances climbed to the highest share of the market seen since December 2016, at 53.9 percent.

With rates slated to keep rising throughout 2018, the sooner consumers can get into the market on a home purchase in particular, the better off they will be when it comes to locking in top affordability.




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