Housing affordability just hit a 33 year low: What does that mean for real estate investors?

August 26, 20223 min read
Housing affordability just hit a 33 year low: What does that mean for real estate investors?
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In the headlines: The Federal Reserve’s recent rate hikes and sky-high housing prices are driving prospective homebuyers out of the market. 

The National Association of Realtors housing affordability index fell to 98.5 in June of this year, its lowest level in over 33 years, meaning new homes are now less affordable than they were during the 2006 housing bubble.

Source: CoStar

The pandemic was a major factor in the run-up of housing prices, as city residents fled to the outskirts and coastal city dwellers opted for more spacious and often less expensive places inland. 

This is happening within the context of  rent prices soaring, after a temporary dip during the pandemic when landlords worked to prevent the mass exodus of city residents by lowering prices. 

In the US, asking rent prices are now 23% higher in the second quarter of 2022 than they were in the same period of 2019, according to Census data released earlier this month.

Source: Axios

Why this matters: Outsize price gains in housing means more people will be deterred from committing to mortgages, opting to rent instead. This lends more power to landlords when pricing rents, as inflation and lack of affordable mortgages also drive up the number of tenants.

  • Mortgage rates have been climbing since the Fed began an aggressive series of rate hikes in March to rein in inflation. Property owners were left weighing their monthly payments against the price increases for staples like groceries and gas.
  • Fewer people are now open to committing to mortgages, with demand for home buying hitting a 22-year low in June, as rising interest rates and recession fears deter the next set of would be buyers. 
  • In turn, this is all affecting existing home sale patterns. In July, home sales were down by 30% over the prior year, while sales in the more affordable Midwest region declined by 14.4%.

Between the lines: Forward-looking data sourced from the National Association of Realtors pending home sales index and the Mortgage Bankers Association’s index indicate that home sales will continue to decline this month and next, which might lead to price appreciation of houses cooling over time. 

  • But similar market cooldowns usually come with a lag, and since early 2021, lag times between prices and market conditions have only gotten longer. 
  • At the same time, labor and material shortages are still delaying many housing developments where work was already underway, which is continuing to put pressure on home supply. It might still be some time before supply catches up with demand, which means rentals and rent prices are expected to keep increasing, though with an end in sight.

Yieldstreet and Real Estate 

The current market conditions make this a ripe time for investors to take advantage of real estate investments. As housing affordability continues to put external pressure on the number of homebuyers, tenant rentals are expected to increase, which can create favorable conditions for single- and multi-family investments. Browse some of the deals available on our marketplace and see how you can increase your real estate exposure during this opportune time.