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Trouble on the Home Front

August 23, 2023 | Posted in: Insights, Investing

Housing affordability is at its lowest level in four decades due to a combination of higher mortgage rates and a surge in home prices. According to the Federal Reserve, the average mortgage interest rate has risen from 2.66% in December of 2020 to 7.09% currently, the highest level in 23 years. To make matters worse, Zillow reports that the average home price has risen by 31.6% during the same period. Combining the two, the average monthly mortgage payment assuming 80% financing increased from $854 to $1870, an increase of 119%. By the way, the 20% down payment on the average home is right at $70,000 which is certainly daunting for many potential buyers.

Affordability varies by state with California presenting a particularly difficult challenge to prospective homeowners. With a median home price of $830,000, only 16% of Californians have sufficient income to qualify for a 30 year mortgage.

Nationally, mortgage applications are 30% below last year’s level. This is a function of both higher interest rates and the fact that the number of homes for sale is at the lowest level since 1999.