Jaspreet Singh is not optimistic about the average homebuyer’s prospects in the current housing market — and with good reason. The attorney, personal finance influencer and YouTube star dedicated an episode of his “Minority Mindset” show to caution his audience about today’s conditions of unaffordability.
And he has the data to back it up.
Singh — a member of the GOBankingRates 100 Most Influential Money Experts list — told his audience that this is the worst time in history to buy a home because both prices and mortgage rates are sky high, and incomes haven’t risen fast enough to keep up.
Singh established the crux of his argument by quoting the opening sentence of a recent Markets Insider article, which reads, “Americans looking for a new home are facing the least affordable market ever, according to data from the Mortgage Bankers Association.”
That’s a bold statement, but one that seems to be accurate.
The Mortgage Bankers Association’s Purchase Applications Payment Index (PAPI) measures affordability conditions. A higher number indicates declining affordability based on increasing loan amounts, falling earnings, rising mortgage rates or a combination of all three — and in this case, homebuyers got hit with the trifecta. In April, the PAPI jumped by 0.5% to a record high of 172.3 thanks to rising loan application amounts, mortgage rates that haven’t retreated from the high sixes and income levels that haven’t grown quickly enough to keep pace.
The report also cited a different housing index that ranks only three of America’s 25 largest cities — Detroit, Baltimore and St. Louis — as being affordable.
Singh also cited the report’s findings that the median monthly mortgage payment climbed from $2,093 in March to $2,112 in April.
Singh said, “We’ve been seeing mortgage payments grow month over month over month, year after year after year, and they’re rising significantly faster than wages.”
But Singh believes high home prices play only a secondary role and that interest rates are the real killer.
The report showed that the Federal Reserve’s anti-inflation measures caused mortgage rates to more than double from less than 3% in 2022 to higher than 7% this year. Today, they’re just under 7% on the heels of 10 consecutive Fed rate hikes.
To illustrate just how dramatically rising rates reduce purchasing power, Singh told his YouTube audience, “If you were to borrow $400,000 just a couple of years ago, not even a couple of years ago, at 3%, which is what a 30-year fixed mortgage was, you were paying $1,650 a month on that money that you’re borrowing. Today, if you want to borrow $400,000 for that home, you’re not getting it at 3%. You’re paying 7%, which means you’re not paying $1,650. Now you’re paying about $2,660 a month to borrow the same amount of money.”
Rising rates and prices don’t exist in vacuums — buyers have to contend with both simultaneously.
Expanding on his previous point, Singh ran the numbers to show how the two forces formed a tag team that quickly outran any increases in earnings.
“Here’s the kicker,” Singh told his “Minority Mindset” audience. “You can’t buy that same home by borrowing $400,000. You’re going to have to borrow $430,000 to go out and buy the same home as before. So, not only do you have to pay more money to borrow that money to buy that home, but you need more dollars to buy that home.”
For context as to just how challenging conditions have become for homebuyers, data from real estate brokerage Redfin shows that the percentage of “affordable” homes — those with estimated payments under 30% of the local median income — fell from 40% in 2021 to just 21% in 2022.
On top of that, a shortage of new listings has further disrupted the supply-demand balance — but relief might finally be in sight.
According to Redfin, home prices are already falling for the first time since 2012 and a Reuters poll found that analysts expect prices to fall by 4.5% by the end of 2023. Also, experts with Money.com predict mortgage rates will begin to ease in the coming months — perhaps into the 5% range — as the Fed continues to tamp down inflation toward its 2% target.
But if interest rates and home prices fall too quickly, a spike in demand could outpace the availability of inventory, which could send home prices back up as buyers rush to flex their renewed purchasing power.
The trick is to save money now and stay tuned to unfolding developments so you’re ready to pounce when relief finally arrives, but before improved conditions put prices out of reach once again.
Singh told his audience, “This is where you want to be the person who’s cutting through the headlines… to be educated to identify the opportunities, but then also to be prepared to capitalize on the opportunities, meaning have the money to be able to buy the opportunities. That way, you can win in this economic system.”
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