Housing Affordability has collapsed in 2022, According to a new report

Real estate has drastically changed between the years 2021 and 2022. The change in the Real estate market resulted from trying to rise from the economic downfall of Covid 19. Since then, the U.S has recorded an increased number of people who intend to buy houses. On the other hand, homeowners are reluctant to sell their property and have withdrawn property from the market. Most people are unsure whether employment will go back as it used to be before the pandemic, which might be why people do not want to sell out mortgages. Supply of houses does not meet the increasingly high demand that has resulted in unaffordable housing in the United States of America.

After studying the real estate of the U.S economy, Chris Flanagan and his team at the BOFA Global Research claimed that housing affordability is collapsed. Recently home prices in the U.S have been increasing by the day as the market continues to experience high mortgage rates. Almost all areas of the United States have been affected by the issue. After Covid 19, house prices increased first in the expensive cities such as San Fransisco. People moved from expensive cities to the suburbs, which was a cheaper option. Eventually, all parts of the United States were affected, thus the unaffordability in coastal areas and the suburbs.

The BOFA team now compares the current situation to how it was in the last three months in 1987 and from January to March 2005. During those years, the U.S.A recorded low affordability in the real estate as it now is.1987 experienced a stock crash normally called “black Monday”, which then led to high mortgage prices. In the trading session, about 22% was tumbled by Don Jones’s industrial average. It led to the emergence of subprime morgages in the market where interest rates were above the fixed rate. The effect of increasing the home price was evident from 2000 to 2005. The year 2005 recorded the highest price of mortgages in the market.

The real estate sector in 1987 experienced a problem when the number of available houses to be sold went down by about 30%. The drop in the number of mortgage available for sale increased further when the interest increased above the fixed rate (subprime mortage), which affected the economy and went up to 45%. With the above information, Flanagan concluded that there are chances of a 35% decline in the number of homes available for sale in 2022.

In March this year, prices of mortgages increased by 20.6% annually. The data indicated that there are possibilities prices are at peak, mind you, that factors such as appreciation the low mortgages races that have disappeared since then. The 20.6% percentage in increase could probably be the reason why most homes in the U.S are considered unaffordable and the high inventory levels. Low mortgage rates negatively affect home buyers because homes’ overall cost becomes relatively expensive, thus the unaffordability ratings.

Between last winter and May 2022, home prices have been recorded to be twice as much this year as compared last year. Last winter, houses were sold for about 2.75%, than this year. May this year, mortgages went by about 5.25%, recording an increase. The increase in home prices resulted from the federal government trying to fight increasing inflation rates ( closely 40-year high) by adding mortgage interest rates. The government had plans to tackle the inflation rates by raising about $9 trillion from interest induced on mortgages.

The Fact Set data indicated that even with the increase of mortgages prices, the mortgages tied up in stocks and bonds have been vulnerable, with sales and purchase 500 indexes off by about 14% from January while at the same time Nasdaq composite index is more than  20% below its peak index

Flanagan of the BOFA team also notes that those that provide housing for sale are very supportive even though the reduced affordablility of mortgages impacts them by reducing potential buyers. He defines the unaffordability of housing among post people as a harsh condition in the United States of America. Flanagan’s information shows that severe conditions in the real estate sector have affected both investors and buyers. For buyers, they cannot afford overly expensive morgages. At the same time, investors cannot reduce prices due to the interest rates posed by the Federal government.

Blame is directed to the subprime mortgages and the years of poorly putting up homes. The effects are evident in recent years because of the shortage in the supply of homes which will take a long time before things get back to normal. Flanagan continues to say that before the pandemic, the supply for mortgages was tight. After Covid 19, it is evident that most people are shifting to bigger homes in the surburbs away from the big cities, allowing people to work from home.