As the heated talk over tariffs dominated the financial news, you might have missed a notable fact: housing affordability has dropped to its lowest level in nearly a decade. That’s a shame, considering that the economy is picking up steam and incomes are finally creeping higher.
The core issue is that just as more Americans are financially ready to buy a home, it’s hard to find one. The National Association of Realtors said that the lack of inventory caused existing home sales to fall in May, as they have in six out of the last nine months. The dearth of available homes has continued to push prices higher – the median existing-home price has risen to $264,800, an all-time (nominal) high, according to NAR. May’s price increase marked the 75th straight month of year-over-year gains and along with rising mortgage rates (up 11 percent from a year ago), may help explain why the ATTOM Data Solutions Housing Affordability Index dropped to its lowest level since Q3 2008.
And while builders are ramping up the pace of new home construction to address demand, they face a shortage of labor and rising lumber prices, which are up by more than 40 percent from a year ago, due to wildfires as well as the Trump administration's 20 percent tariff on imported Canadian lumber. Higher wood costs have added approximately $9,000 for a new single-family home, according to the National Association of Homebuilders.
Although the news seems dismal, relief could be coming. According to Bill McBride of Calculated Risk blog, “It appears existing home inventory has bottomed in some areas, and might be close to bottoming nationally…if inventory starts to increase, then house price growth will probably slow.”
A respite in both house price increases and advancing mortgage rates might also coincide with a decent bump in real (after inflation) disposable incomes, as more Americans notice the bit of extra money from the Republican tax cuts and a gradual pick-up in hourly wage growth.