Is Affordability Becoming a Bigger Issue for the Housing Market?

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Despite interest rates remaining low on a historical basis, the recent rebound is impacting affordability as applications for mortgages posted another losing week.

According to the Mortgage Bankers Association’s latest report, for the week ended August 9, loan application dropped 4.7 percent on a seasonally adjusted basis from one week earlier — the twelfth decline in 14 weeks. The figure includes both refinancing and home purchase demand and cover more than 75 percent of all domestic retail residential mortgage applications.

The industry group’s refinance index fell 4 percent while the unadjusted purchase index declined 6 percent. Overall, the refinance share of mortgage activity accounted for 63 percent of total applications, unchanged from the previous week, and at its lowest level since April 2011.

The average interest rate for a 30-year fixed-rate mortgage edged lower to 4.56 percent compared to 4.61 percent in the week before. The most recent average rate for a 15-year fixed-rate mortgage came in at 3.60 percent compared to 3.66 the week before. Between the beginning of May and the end of June, the average interest rate for a 30-year fixed-rate mortgage surged from 3.59 percent to 4.68 percent.

Mortgage rates are still low on a historical basis, but the recent rise is affecting affordability when combined with rising home prices. In the second quarter, 69.3 percent of new and existing homes sold were affordable to families earning the U.S. median income of $64,400, according to the National Association of Home Builders. That is down from 73.7 percent in the first quarter and is the first reading below 70 percent since late 2008.

In morning trading, home-related names, such as Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW), edged lower. Meanwhile, home builders declined across the board. Shares of PulteGroup (NYSE:PHM), D.R. Horton (NYSE:DHI), and Lennar (NYSE:LEN) all fell more than 1 percent.

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