Index: More would-be homebuyers stymied by continuing rise in mortgage rates, housing prices
By The Star Staff
The Affordable Housing Index, prepared by Estudios Técnicos Inc. (ETI), decreased in September of this year because of the continuous hike in housing prices and mortgage interest rates that make it difficult for families to buy homes in Puerto Rico.
“The downward trend of the Affordable Housing Index persists, declining from 64% in August to 58% in September and to 54% in November, according to our projection,” said Leslie Adames, director of economic analysis and policy at ETI.
“Of course, this projection could change once the Office of the Commissioner of Financial Institutions publishes the official figures on the real estate market,” he said. “However, it gives a good indication of where things are going in terms of affordability resulting from rising interest rates and rising median home prices, and it’s not a good thing.”
The Affordable Housing Index, prepared by ETI, measures whether or not a typical family that contributes a 20% down payment toward purchasing a home qualifies, based on median income, for a mortgage loan. A value of 100% means that the family has the necessary revenue to be eligible for a mortgage based on the average price prevailing in the market. A value higher than the threshold means the family has more than enough income to qualify for a home loan. In contrast, values less than that threshold reflect the opposite.
Adames said the most recent figure from the Affordable Housing Index shows that a typical family has only 54% of the income needed to qualify for a mortgage loan, assuming a down payment of 20%. Before this, the Index had stood at 62% in December 2010. At that time, the 30-year fixed mortgage interest rate was 4.71%, and the increase in the price of housing units that persists was not outlined in the market. However, the reality is very different now.
In November, the interest rate for mortgage loans was 6.81%, doubling the rate of 3.07% in November 2021. The price of housing units for sale increased by 10% per year for the 12-month period that ended in the third quarter of 2022 versus 5.9% year to year for the second quarter, according to the Federal Housing Financing Agency Home Price Index.
“The affordability problem is problematic since those factors that affect its evolution do not appear to be giving up,” Adames said. “Not only is there a risk that the interest rate will continue to increase in the short term, but inflation continues to affect consumer budgets, and the increase in average housing unit prices still persists.”