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The last time houses were this unaffordable was 2006

Black Knight: Markets in a third of the country are now the least affordable they’ve ever been

Surging interest rates and home price appreciation made March one of the most challenging months for prospective homebuyers looking to make purchases, according to a recent report. 

Annual home price gains saw 19.9% annual appreciation in March, down from an upwardly revised 20.1% in February, which was the first month to see price growth greater than 20%, according to Black Knight’s monthly mortgage monitor report. While the annual home price growth reflects a slowdown in March after accelerating for the previous four months, home prices are up about 6% nationwide year-to-date and the 30-year mortgage interest rate of 5.11% as of April 21 continued to propel a lack of affordable homes.  

“As measured by the share of median income required to make the principal and interest payment on the average-priced home bought with 20% down, U.S. housing was the least affordable ever back in July 2006 when it took 34.1% to make that P&I payment,” Ben Graboske, president of Black Knight Data & Analytics, said in a statement. 

“As of April 21, that payment-to-income ratio has now climbed all the way to 32.5%, within just 1.6 percentage points of the prior record,” Graboske added.

A rate increase of 50 more basis points or a 5% increase in home prices would push affordability to its worst level on record, according to the report. Since the start of 2022, rates have gone up 200 basis points and housing prices have surged 5.9%.

Adjustable-rate mortgages, which typically have lower interest rates than fixed-rate mortgages, have become an attractive option for borrowers in a challenging housing market. The spread between 30-year and ARM offerings is the widest it’s been since 2014 and within 20 basis points of an all-time high. 

How lenders can continue to serve borrowers despite housing affordability challenges

Potential borrowers who’ve been priced out of the housing market need to be able to compete with an increasingly growing share of cash buyers and investors who are beating them in bidding wars.

Presented by: Finance of America

The ARM share of purchase rate locks by volume spiked from 2.5% in December to about 8% in March – the highest share since 2017. As of mid-April, applications for ARM mortgages jumped to 8.5% of total mortgage applications, the highest level since 2019, according to the Mortgage Bankers Association

About 95% of the 100 largest markets are now less affordable than their long term benchmarks from 1995 to 2003, up from just 6% at the start of the pandemic. Markets in a third of the country are now the least affordable they’ve ever been. 

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