Texas A&M Researchers Say Rising Mortgage Interest Rates Hurt Housing Affordability | Latest titles

According to Clare Losey, assistant research economist at Texas A&M University’s Texas Real Estate Research Center, rising mortgage interest rates are hurting housing affordability in Texas, which is affecting first-time home buyers.

“A higher mortgage interest rate equates to a higher monthly mortgage payment because, all things being equal, the borrower is going to spend more on the cost of mortgage capital, which means they are going to pay more interests,” she said. Wednesday. “As the total monthly mortgage payment increases, the income the borrower must earn to qualify for that mortgage also increases. The effect this has is that for a house at the same price with a mortgage interest rate higher, the borrower must actually earn a higher income to qualify for a mortgage.

Losey said higher rates push more households out of the homeownership market because as the income required to qualify for a mortgage increases, fewer potential buyers will be able to qualify.

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“The Median Home Price for Bryan-College Station [metropolitan area] in the second quarter of 2022 was $314,000. We estimate that for a repeat buyer, a buyer who already owns a home and is looking to sell their current home and move into another home, their required income to qualify for a mortgage is approximately $54,000,” she said. “It doesn’t include the cost of property taxes and insurance, it’s just the main mortgage interest.”

For a B-CS family looking to buy a home for the first time, Losey said, their income required to qualify for the starting home price was about $220,000 in the second quarter of the year. This family should earn a required income of about $40,000, regardless of property taxes and insurance, she said.

“Bryan-College Station and Texas are still relatively affordable when it comes to home ownership. The noticeable decline in affordability from the first to the second quarter of this year is largely precipitated by this increase in mortgage interest rates,” Losey said. “The rate hike was about 3 percentage points from Q1 to Q2, which is a pretty big increase in the mortgage interest rate. Overall, B-CS is relatively well positioned when it comes to l affordability of housing.

Losey said that, based on research by TRERC, a Bryan-College Station family earning the median income actually earns 34% more than needed to qualify for a mortgage payment on a median-priced home.

“Essentially, the median family income in B-CS is more than enough to qualify for the median-priced home,” she said. “Looking ahead, we know that Texas has a strong economy and we’re doing pretty well. However, we have this looming question of whether we’re currently in a nationwide recession or will- we in recession later this year or in 2023?That has yet to be answered.

Losey said that barring an economic shock, such as a recession, she expects that as the Federal Reserve tries to control inflation and achieve price stability, it will continue to raise federal funds rates, which will induce upward pressure on mortgage interest rates.

“As long as these rates go up, we’re likely to see some slowdown in demand for homeownership,” she said. “So that should help moderate that price growth to help affordability.”

Harold Hunt, a research economist with TRERC, said he agreed with Losey that mortgage interest rates are on the rise, but have come down slightly over the past two weeks.

“Recently, we’ve seen mortgage rates go down. We had a race in June, but they went down,” he said. “But, the Fed is expected to raise the fed funds rate, mortgage rates will go up, we don’t know by how much. … They are expected to go up because the Fed continues to raise interest rates to try to fight inflation.

Jim Gaines, a research economist with TRERC, said mortgage interest rates over the past six months had risen from around 3% interest to 5.5-6% at a time.

“These interest rates change almost daily. For example, if your interest rate went from 3% to 6%, your monthly payment to borrow the same amount of money may have increased by hundreds of dollars per month depending on what you were looking for,” said he declared. “A lot of people have fought for lenders to say ‘With your monthly income, you can’t afford that monthly mortgage, but you can afford that much, which is less.’ So now people had to either make up with the down payment or buy a cheaper house.

For many people earning between 50 and 90 percent of the region’s median income, or about $53,000 a year, Gaines said they were hit the hardest by the rate hike.

“Someone making $45,000 a year, as a family or as a household, is the type of buyer about to qualify for a mortgage and be able to buy a home they want to buy,” did he declare. “I don’t think we’ll ever see a 3% mortgage interest rate again.”

For more information on housing affordability, visit refocus.tamu.edu.

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