Housing Affordability Sits at an All-Time Low, a Reuters Analysis Finds — Mortgages Over 7 Percent Have Locked a Generation Out

The dysfunctional American housing market surely contributed to the drubbing Republicans received in this week's midterm elections — and its numbers, assembled in a Reuters Breakingviews analysis read in full by this desk, describe New York's own housing emergency as precisely as any city's. Housing affordability, measured by the monthly cost of servicing a new mortgage, is at all-time lows, according to the National Association of Realtors figures the analysis cites. The monthly cost of carrying and insuring a median home is up 63 percent since early 2022 — nearly three times the increase in disposable incomes over the same period, according to Empirical Research.

The mechanism is a lock-in. The current cost of a 30-year mortgage is over 7 percent, yet roughly three-quarters of outstanding residential mortgages pay less than 6 percent — the gap between the effective mortgage rate and the current rate is at its highest level since the early 1980s, so most owners cannot move without taking a financial hit. Turnover is at its lowest level in decades, which keeps the homes that do list expensive. Apollo Global Management's chief economist Torsten Slok calculates that at a 6.5 percent rate with 10 percent down, nearly 70 percent of US households cannot afford the median US home valued at $400,000, and more than half can only afford properties priced below $300,000.

Supply has not rescued the market. Home sales in September fell to their lowest level since 2001, the number of houses under construction has dropped 40 percent over five years, and the shortfall is counted in millions: Freddie Mac estimates the country has built some 3.7 million fewer homes than it needs since the global financial crisis, and Morgan Stanley analysts calculate 5.5 million. The result is a K-shaped market the analysis describes plainly: household equity in real estate stands at a record $35 trillion — about $400,000 per owner-occupied home — while the homeownership rate has dropped and the average age of first-time buyers has risen to 40, up 10 years since 2008. It is no wonder, the analysis notes, that candidates endorsed by the Democratic Socialists of America are winning votes.

Breakingviews sees only three exits, each costly. Home prices could fall more than 20 percent in nominal terms to restore the long-term price-to-income ratio — a crash that would threaten another financial crisis. Incomes could rise faster than prices for several years — possible, but not yet fast enough. Or interest rates could fall substantially — which, the analysis argues, President Donald Trump's policies of running a large fiscal deficit while waging war on Iran have pushed against, and which a push for control of long-term yields would risk destabilising the dollar to achieve. Trump, the analysis concludes, is a self-described low-rates guy — and this could be his last roll of the dice.