Affordable Housing Index by Technical Studies, Inc. (ETI), fell to 60% in June this year, its lowest in a decade, as consumers made it even harder to qualify for mortgages in Puerto Rico ahead of rising interest rates, more expensive homes and declining household incomes due to inflation.
Economist Lesley Adams, director of economic analysis and public policy at ETI, explained that “the index, which peaked at 100% in March 2020, has steadily worsened this year. By June 2022, it stood at 60%, down 40 percentage points from March 2020. a down payment of 20% is considered a conservative assumption.”
The Home Affordability Index measures whether a typical family that makes a 20% down payment on a home purchase is eligible for a median income-based mortgage. A value of 100% means that the household has the necessary income to qualify for a mortgage, based on the prevailing average market price. A value above this threshold suggests that you have more than enough income to qualify for a mortgage, while values below this threshold reflect the opposite.
Adams reported that the index stood at 65% in March 2011, rising gradually to 100% in 2020 due to the low interest rates and falling home prices that dominated the market until 2014. However, these trends have recently reversed. two years, and there appears to be no sign of a positive turnaround in the economy that will increase housing affordability anytime soon. In March 2022, the index was 69%, and now it has fallen to 60%.
“The problem of housing supply, which persists in the real estate market, is obvious. This, plus a boom in housing demand at prices still considered reasonable from the peak of the market, as well as low interest rates, have weighed on prices. However, this has changed, and not for the better. The Federal Reserve is reducing liquidity in the financial system by shrinking its balance sheet, which will help raise medium and long-term interest rates. The fixed interest rate on the 30-year mortgage was already 5.52% in June compared to 5.23% in May and 3.45% in January of this year,” Adams said.
The ETI economist added that for those looking to buy a home, the picture is complex because new homes are more expensive. “Inflation in construction materials has increased the cost of construction, which will make new homes more expensive for a population whose purchasing power continues to be under pressure due to the inflationary spiral the island is facing,” he said.