Inflation Impacting Housing Affordability

In a recent e-newsletter, National Association of Home Builders (NAHB) chief economist Robert Dietz shared his insights on the current and future economy and provided housing market updates. The rising mortgage interest rates and stricter policies from the Federal Reserve will continue to affect housing affordability through the rest of the year. Since the beginning of 2022, the average 30-year fixed-rate mortgage jumped to 4.7 percent, an increase not seen in decades. Home sales were down 2 percent in February, 6.2 percent lower than the previous February. 

“Higher inflation and business costs, combined with increasing interest rates, tightened monetary policy and waning fiscal stimulus, will slow overall economic growth in 2022,” Dietz says. “While most forecasters, including NAHB, do not predict a recession during 2022, the risk of a recession next year is rising. The Fed’s intended aggressive policy path for higher rates would guarantee an economic slowdown and risk an outright recession in 2023. To engineer a soft landing, tightened monetary policy must be complemented with fiscal and regulatory policy that helps ease the economy’s myriad supply-side challenges.”

First-time homebuyers will feel the sharpest pinch from the housing affordability crunch as they don’t have the home equity and household wealth to alleviate the higher costs and home prices. The National Association of Realtors (NAR) partnered with Morning Consult to conduct the 2022 Obstacles to Home Buying, which discovered that a lack of affordable housing was the No. 1 obstacle for homebuyers of all races. 

The report found that the second biggest challenge for Hispanic buyers is difficulty saving for a down payment, while Black homebuyers indicated that the second hardest challenge was a lack of credit or credit issues. For white and Asian buyers, a lack of homes that fit their criteria was a big challenge.

“Record-high home prices and record-low inventory have made the home buying process exceedingly difficult,” says Dr. Jessica Lautz, NAR vice president of demographics and behavioral insights. “Our new study shows that while the inventory crisis is affecting potential buyers of every race, nearly all home buyers agree that homeownership is still an important part of the American Dream.”