"Mortgage rates surged for the third straight week of the new year. According to Freddie Mac, the 30-year fixed mortgage rate rose to 3.56% from 3.11% in the last week of 2021.This is a 45-basis point (0.45%) increase in less than a month.
With even higher rates on the horizon, there are increasing concerns about affordability issues, particularly among first-time buyers. In fact, NAR's first-time affordability index dropped below 100. This means that first-time home buyers with the median income don't have enough income to qualify for a mortgage on a median-priced starter home. Specifically, the median family income of renters in the 25 to 44 age group is about $57,000 while the qualifying income for a starter home is $62,000. Meanwhile, these renters are already squeezed due to rising rental costs. One in two renters from 25 to 44 years old spend more than 30% of their income for rent. That makes it even more difficult for them to save for a down payment.
The good news is that construction has increased for the third consecutive month in December. In the past year, we built 24% more homes than in 2019. This translates to about 300,000 additional homes. Thus, we need to ensure that the housing supply will continue to increase, easing the current housing shortage."