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There's a 3-part checklist for how housing can become affordable again, economist says
By Filip De Mott,
14 hours ago
An aerial view of homes in Atlanta, Georgia.
halbergman/Getty Images
US housing affordability can come back by 2027 if three criteria are met, a TD economist said.
Mortgage rates, income growth, and price growth will need to trend in a specific direction.
The market has become out of reach for many people amid low supply and rising costs.
A return to widespread housing affordability is not out of reach, as long as three criteria are met over the next few years, TD economist Shernette McLeod wrote .
The analyst predicted that national affordability could return by mid-2027, defined by a household's ability to contribute no more than 25% of its income on monthly costs.
For some, that may be a far cry from current realities: the US market has become exceedingly unaffordable in the post-COVID era, with homebuyers navigating both a home supply shortage and high mortgage rates.
McLeod noted that ownership costs have also priced many out: for instance, annual average insurance premiums grew an estimated 25% between 2022 and 2023.
In this context, the NAR housing affordability index has declined 44% since 2019 — at its current level, median-income households are not making enough to meet McLeod's affordability threshold.
"Perhaps the most natural assumption is that a significant drop in home prices commensurate with the run-up during the pandemic would be necessary," McLeod said. "Such a scenario, however, would likely require a US recession and a nationwide spike in job losses accompanied by a swift and sizeable rate-cutting cycle."
Instead, income growth, home price growth, and mortgage rates need to hold to a certain level through the next three years to revive affordability, she wrote.
Mortgage rates will need to decline modestly to a 5% to 5.5% range, which could be on the horizon as the Federal Reserve prepares to lower interest rates.
Given that these rates closely track Fed policy, the weekly 30-year fixed mortgage rate has already slid to 6.35% from prior 7% highs.
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