Mortgage Market Update

Inflation, Higher Mortgage Rates Making U.S. Affordable Housing More Elusive Inflation and the increasing likelihood of a mild U.S. recession will exacerbate supply shortage stress already being acutely felt within U.S. affordable housing in 2023, according to Fitch Ratings in a new report. Historically low housing supply and homeownership has been placed even further out of reach for many low-income households, according to Senior Director Karen Fitzgerald. “Competition has intensified for rental units, which has accelerated rent growth,” said Fitzgerald. “These factors have intensified the housing cost burden among low income households, further widening the affordability gap.” The strain on housing affordability is notable with all 50 states experiencing a dearth of affordable housing units. In particular, California has a gap of more than 1.4 million units for households earning at or below 50% of area median income (AMI). Following California are Texas, New York, Florida, New Jersey and Illinois, all with large deficits of affordable units for households earning at or below 50% of AMI. Worsening affordability is paving the way for some regional home price corrections, though a crash similar to what the broader housing market endured in 2008-2009 is highly remote. Inflationary pressures on household budgets and higher mortgage rates are creating additional barriers to homeownership, increasing down payment requirements and monthly mortgage payments. “Despite the economic recovery and resurgence in employment since the initial months of the pandemic, lower income homeowners and renter households are still in need of broader reforms to address persistent affordability issues,” said Fitzgerald.