Affordability could be 20% by the end of the year

Affordability of US housing worsened by 5% in the first quarter of 2018 compared to a year earlier and could be deteriorate by up to another 15% by the end of the year.

The gloomy outlook for homebuyers comes from Arch Mortgage Insurance Company (Arch MI) which says that affording a house has become more difficult than it has been for decades.

Rising home prices and mortgage costs have made 2018 one of the worst for year-over-year deterioration of affordability in 25 years, the report says.

“If mortgage rates and home prices continue to rise as expected, affordability will get hammered by year-end as demand continues to outstrip supply,” said Dr. Ralph G. DeFranco, Global Chief Economist-Mortgage Services, Arch Capital Services Inc. “A strong U.S. economy combined with a housing shortage in many markets means that there is little hope of any price drop for buyers. Whether someone is looking to upgrade or purchase their first home, the window to buy before rates jump again is probably closing fast.”

More good news for current homeowners

On the flip side is Arch MI’s forecast for continued home price increases, good news for current homeowners, with the firm’s statistical model predicting just a 5% risk of prices falling.

The healthy labor market, relatively low interest rates, and other favourable fundamentals, all support low risk of local housing busts or price declines.

At the state level, Alaska, North Dakota, Wyoming and West Virginia have the highest probability of home price declines over the next two years.

Spring 2018 Arch MI Risk Index
States with the Highest Risk Index Values (Probability of Price Decline Times 100)