NAR: Inflation continues to harm housing market

With sustained price appreciation and higher mortgage rates, affordability greatly worsened in the first quarter of 2022.
a street sign in front of a house

The National Association of Reatlors (NAR) said there are significant questions regarding the direction of the housing market in the coming months.

Speaking at the 2022 Realtors Legislative Meetings, NAR Chief Economist Lawrence Yun explained that housing helped keep the economy afloat during the pandemic as home prices increase and buyer demand remained strong.

“However, this year has already thrown some curveballs, including record-low inventory and unyielding inflation,” Yun said.

Housing supply appears to be on the upswing as builders increasingly construct new homes, But inflation is expected to continue while causing a strain on would-be home buyers. Other external economic factors will negatively impact the market, both indirectly and directly, Yun said.

“The Russia-Ukraine war and escalating fuel prices have contributed to further housing unaffordability for buyers.”

Yun explained that a more immediate impact for home seekers has been the rapid increase of mortgage rates, along with other anti-inflationary actions from the Federal Reserve.

“Mortgages now compared to just a few months ago are costing more money for home buyers,” he said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family.”

The NAR said it calculates that purchasing a home is now 55% more expensive than a year ago. And while wages might be improving, any benefits are being wiped away due to inflation.

NAR Metro Home Prices Q1
The National Association of Realtors reports more metro markets saw big home price gains in the first quarter.

“Wages have risen by 6% from one year ago and that’s good news,” Yun said. “But inflation is at 8.5%.”

Pending home sales have declined for five-straight months and Yun estimates inflation will remain “elevated” for the next several months.

The first quarter of 2022 saw more markets reachdouble-digit annual price gains than the previous quarter, according to the NAR’s latest quarterly report

About 75% of 185 measured metros experienced price gains, up from 66% in the preceding quarter.

The price increases come as median single-family existing-home prices rose at a faster rate nationally – 15.7% – from one year ago, up to $368,200. In comparison, the year-over-year pace in the prior quarter was 14.3%. Notably, the South region made up 45% of single-family existing-home sales in the first quarter and notched a double-digit price appreciation of 20.1%. Meanwhile, the Northeast saw a climb of 6.7%, the Midwest 8.5%, and the West 5.9%.

“Prices throughout the country have surged for the better part of two years, including in the first quarter of 2022,” Yun notes.. “Given the extremely low inventory, we’re unlikely to see price declines, but appreciation should slow in the coming months.”

The top 10 areas with the highest year-over-year price gains were made up of midsize and small markets, with half of the sites located in Florida. 

These markets include Punta Gorda, Fla. (34.4%); Ocala, Fla. (33.8%); Ogden-Clearfield, Utah (30.8%); Lakeland-Winter Haven, Fla. (30.1%); Decatur, Ala. (28.9%); Tampa-St. Petersburg-Clearwater, Fla. (28.8%); Fort Collins, Colo. (28.4%); North Point-Bradenton-Sarasota, Fla. (28.0%); Myrtle Beach-Conway-North Myrtle Beach, N.C.-S.C. (28.0%); and Salt Lake City, Utah (27.9%).

“Traditionally, homes in these markets were viewed as relatively inexpensive, but with recent migration trends, prices have increased significantly,” Yun said. “As more families relocateto various areas, we may see some surprising markets on our top 10 list.”

Lawrence Yun wearing a suit and tie
Lawrence Yun

Half of the nation’s top 10 most expensive markets were in California, including San Jose-Sunnyvale-Sta. Clara, Calif. ($1,875,000; 25%); San Francisco-Oakland-Hayward, Calif. ($1,380,000; 15%); Anaheim-Sta. Ana-Irvine, Calif. ($1,260,000; 26%); Urban Honolulu, Hawaii ($1,127,900; 19.9%); San Diego-Carlsbad, Calif. ($905,000; 18.5%); Boulder, Colo. ($859,100; 18.2%); Los Angeles-Long Beach-Glendale, Calif. ($792,500; 13.1%); Seattle-Tacoma-Bellevue, Wash. ($746,200; 14.2%); Naples-Immokalee-Marco Island, Fla. ($745,000; 24.3%); and Denver-Aurora-Lakewood, Colo. ($662,200; 19.4%).

With sustained price appreciation and higher mortgage rates, affordability greatly worsened in the first quarter of 2022. The monthly mortgage payment on a typical existing single-family home with a 20% down payment rose to $1,383, which is up $319, or 30%, from one year ago. Families typically spent 18.7% of their income on mortgage payments (14.2% one year ago).

“Declining affordability is always the most problematic to first-time buyers, who have no home to leverage, and it remains challenging for moderate-income potential buyers, as well,” Yun added.

The mortgage payment on a 10% down payment loan on a typical starter home valued at $313,000 rose to $1,363 during the quarter. That is an increase of $313 from one year ago or 30% from one year ago. 

First-time buyers typically spent 28.4% of their family income on mortgage payments, thus making a home purchase unaffordable. A mortgage is considered unaffordable if the monthly payment (principal 

The NAR reports that a family needed at least $100,000 to afford a 10% down payment mortgage in 27 markets (up from just 20 markets in the previous quarter). However, a family needed less than $50,000 to afford a home in 63 markets (81 markets in the prior quarter).