Home affordability takes another plunge in Raleigh – but buying demand remains strong, agents say

30 June 2022

RALEIGH – The latest housing market data continues to show that for some would-be homebuyers, the Triangle’s real estate market continues to feel out of reach due to rising prices and rising mortgage interest rates decreasing home affordability.

The latest monthly report from First American Financial Corporation, the Real House Price Index, shows that as of April 2022, Raleigh’s housing market saw affordability decline the third-most of any similar-sized metropolitan area.

According to that index, affordability dropped by 59.6% between April 2021 and April 2022.

Only Tampa, Florida (59.6%) and Charlotte (62.5%) saw larger decreases in home affordability, according to the index.

“In April, affordability declined the most year over year in Charlotte, N.C., mostly due to the nearly 28 percent annual increase in nominal house price growth. The strong investor activity and net-in migration in Charlotte increased demand for homes against a limited supply of homes for sale,” said Mark Fleming, chief economist at First American, in a statement corresponding with the latest report.

Wake among least affordable home markets; Those making average wage can’t afford median home

Least affordable quarter

Wake County’s real estate market is concluding the least affordable quarter on record, according to a new report and new data from ATTOM Data Solutions.

The data set, which goes back to 2005, shows that for Wake County, homes have never been less affordable than they are right now.

ATTOM’s data on Wake County found that the median sales price during the second quarter of 2022 was $450,500, and the affordability index had dropped to 63, a record low in the data set.

In Mecklenburg County, affordability plunged as well, according to the ATTOM data set, with the index falling to a record low of 59.

“Extraordinarily low levels of homes for sale combined with strong demand have caused home prices to soar over the last few years,” said Rick Sharga, executive vice president of market intelligence at ATTOM, in a statement.  “But homes remained relatively affordable due to historically low mortgage rates and rising wages.”

Affordability is falling in these markets, even as wages have risen year-over-year in these two counties, the ATTOM data shows.  In Wake County, wages rose by 6.5%, and in Mecklenburg County, wages rose by 4.7%.

Nationally, household income increased by 5%, Fleming noted in the statement about the national housing situation and economy.  “Boosted consumer house-buying power, but even the strong year-over-year income growth was not enough to offset the affordability loss from higher rates and fast-rising nominal prices.”

Consider: ATTOM’s data set shows that while wages grew 6.5% in Wake County and 4.7% in Mecklenburg County year-over-year, the median home price rose 22.2% during the same period in Wake County and 20.8% in Mecklenburg County, outpacing wage growth.

“With interest rates almost doubling, homebuyers are faced with monthly mortgage payments that are between 40 and 50 percent higher than they were a year ago – payments that many prospective buyers simply can’t afford,” said Sharga.

Thinking about buying a house? Do it now as costs keep soaring, economist says

Any relief for homebuyers?

Still, the market may be changing, said Dr. Michael Walden, an economist and a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University and a regular contributor to WRAL TechWire.

That’s because the Federal Reserve is likely to continue to increase interest rates, Walden told WRAL TechWire this week.

“This means mortgage loans will become more expensive, and the number of buyers will drop,” said Walden.  “As a result, home prices will experience smaller gains, and even some losses if a recession is significant.

But Jim Allen, broker in charge of the Triangle-based real estate firm The Jim Allen Group, told WRAL TechWire that the increasing mortgage interest rates haven’t seemed to have much of an effect on local real estate markets, even if rising rates have had an impact in other markets.

“Nothing has changed,” said Allen in an interview with WRAL TechWire. “It is still a very strong sellers market and appreciation is at an all time high.”

And the region continues to see housing demand at a pace that Allen said “we won’t catch up for years to come” due to the economic growth in the region, which is bringing high-wage jobs into the Triangle or creating them locally.

Adjustable mortgages soar as solution to soaring home prices, interest rates

Buyers could consider different financial products

Should homebuyers find that rising mortgage rates on a 30-year fixed mortgage are now preventatively high, many financial institutions may provide a solution, said Allen.

That includes an adjustable rate mortgage, said Allen, noting that he has observed some lenders that are offering these types of loans with a starting mortgage interest rate in the 3-4% range.

Still, decreasing affordability is a concern for some homebuyers.  One buyer who spoke with WRAL TechWire on the condition of anonymity noted that while they still plan to find a home to purchase, they’re increasingly concerned they won’t be able to purchase a home that includes all of the features desired due to ongoing price increases and competition from other buyers.

“Until the supply of housing is much greater, housing will remain strong regardless of interest rates,” said Linda Craft, broker in charge and CEO of Linda Craft & Team, Realtors.  “The future of our housing market remains strong. We are still seeing multiple offers.”

Prepare for a bidding war: Most Triangle home sales top list price, some by $100K+

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