Despite housing affordability being near-record highs, homeownership still feels completely out of reach for many people, Sean Becketti, Freddie Mac vice president and chief economist, stated in a blog.
Becketti referenced how the National Association of Realtors’ Housing Affordability Index currently sits near-record highs, and yet most news headlines talk about an affordability crisis in the country.
So if housing affordability is alright, what’s causing the hold up?
Becketti broke the issue down into three reasons why homeownership feels out of reach.
1. Houses are expensive
House prices have risen over 6% per year on average since the house price trough in 2012, and they show no sign of slowing down. Incomes, however, have not kept up.
According to the latest report from CoreLogic, the property information and analytics provider, home prices increased 6.7% from June 2016 to June 2017 and are forecasted to continuing increasing.
2. Houses are hard to find
The limited supply of available homes increases the perception that homes are unaffordable.
The most recent new home sales report found that new home sales increased in June by 0.8% from May. However, this growth will be limited if homebuilders don’t start to produce homes buyers are calling for.
“The market for new homes is facing a growing imbalance between what buyers want and what homebuilders are producing,” said Tian Liu, Genworth Mortgage Insurance chief economist. “And this is the biggest bottleneck facing the housing recovery today.”
3. Borrowers are uncertain if they can qualify for a mortgage
The HAI tells only part of the story—it measures whether the median-income family has sufficient income to comfortably cover the monthly mortgage payment on the median-price house. But there are other qualifications as well.
Borrowers should talk to a lender in order to see what they qualify for. Joel Gurman, vice president of mortgage banking at QuickenLoans, previously provided seven myths Millennials believe about mortgage lending, with one being “talking to a lender comes before choosing a home.” Gurman explained that along with getting preapproved, all the details a home shopper has will not matter until the lender looks into the specific situation.