While sellers likely won’t go through a foreclosure crisis as they did during the Great Recession, RBC Capital Markets’ Mike Dahl predicts an “affordability crisis,” where rising home prices and interest rates make homeownership unaffordable for the average American homebuyer.

NEW YORK – With economists warning of heightened anxiety about home affordability, RBC Capital Markets analyst Mike Dahl says some housing markets are “on a collision course with an affordability crisis.”

The S&P CoreLogic Case-Shiller Home Price Index reported home prices making near-record gains last year, closing with 10.4% annual growth, likely followed by rapid expansion into January. Meanwhile, Freddie Mac said the 30-year fixed mortgage rate started inching up from a record low 2.65% in January to hit 3.17% this past week.

Rapid home price appreciation amid low inventory prompted Dahl to write that “it appears almost inevitable that we’ll hit an affordability-induced indigestion period … akin to what we saw in 2018. Whether that happens next month, six months from now, or in 2022 is more of a debate.”

Dahl calculated the share of median income needed to make a monthly mortgage payment in 40 local markets and compared that share to the market’s long-term average to determine where affordability is already stretched.

The markets with the most elevated monthly averages compared to their long-term averages were Boise City, Idaho; Charlotte, North Carolina; Fort Myers, Florida; Denver, Colorado; and Orlando, Florida.

Source: Barron’s (03/19/21) Mishkin, Shaina

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