“The savings and income needed to qualify for a home loan have skyrocketed”: 5 reasons the housing market has failed buyers — and it’s not over yet

The housing market is finally taking a breather after a two-year sprint. A new report reveals how the frenzy unfolded.

The report called the ‘Housing of the nation 2022′ from the Harvard Joint Center for Housing Studies shows the steep rise in costs associated with owning or renting a home and how competition among buyers has intensified.

With average home prices soaring past $400,000, home ownership has become much less affordable for the average prospective buyer.

According to, the national median listing price for active listings was $447,000 as of May 2022, a 17.6% year-over-year increase and a 35.4% increase from May 2020.

To be able to afford a house at the average price, a buyer would have to put up more than 38% of their income, according to the Atlanta Fed Home Affordability Monitor.

About 67 of the top 100 real estate markets have experienced record high rates of appreciation over the past year, the report says.

Real estate prices set new records

And that environment is likely to continue for a while given tight inventories. In May, homes stayed on the market an average of just 16 days, which is the lowest number on record, according to the National Association of Realtors.

“Unlike the previous spike, when easy credit and speculative buying fueled a housing bubble, the current rise in home prices largely reflects years of underdevelopment,” the report said.

Supply chain constraints, labor shortages, and regulatory restrictions strangling home builders are all responsible for the slow pace of new construction.

Real estate prices and rents are rising

Renting has also become less affordable. “The cost of both owner-occupied and rental housing continues to rise,” the Harvard report authors noted.

Rents rose 12% nationwide in the first quarter of this year and even more in some metro areas.

Although rents have fallen in major cities like New York during the pandemic, the recovery in the return-to-work environment has been strong. In the first quarter of 2022, NYC apartment rents are up 20% year over year.

Rents for single-family homes rose even more sharply in March 2022, by 14% compared to the previous month.

Growth in housing demand vs. supply

The demand for rental apartments has really increased in the last year.

“A number of temporary factors helped boost rental demand in 2021,” the report explained.

“Federal grants, student loan deferrals, and increased employment likely increased the incomes of many young adults enough to afford to start their own households,” the authors noted.

“Other government interventions protected millions of renters [who were] in arrears with their rents due to evictions. The high prices and tight supply of homes for sale also helped boost demand by keeping many potential buyers in rentals,” they added.

The share of investors in home purchases is increasing

Some of the pressure in both markets is coming from the increasing share of investors in the rental market.

Investors’ share of single-family home sales in the first quarter of this year reached 28%, the report noted, citing CoreLogic data, which rose from 19% a year earlier. Between 2017 and 2019, investors accounted for an average of 16% of single-family home sales.

Investors have focused on the South and West, the report said. In the final quarter of 2021, the highest investor share of home sales was recorded in Atlanta at 41%, followed by San Jose at 38%, Phoenix and Las Vegas at 36%.

To make matters worse, investors are targeting cheaper homes and crowding out first-time buyers.

“In September 2021, investors bought 29% of homes sold that were in the bottom third by sale price in the metro area, compared to 23% of homes sold in the top third,” the report said. “Investor-owned homes are typically converted from owner-occupied units to rentals or upgraded for resale at a higher price.”

Mortgage payments increase

The Harvard Report estimates that payments for a home at the median price have increased by over $600 a month.

In its efforts to combat rising inflation, the Federal Reserve raised interest rates, which drove mortgage rates up sharply. The average interest rate on a 30-year fixed-rate mortgage is reported to be over 6% Mortgage News Daily.

“As prices continue to rise along with interest rates, the savings and income required to qualify for a home loan have skyrocketed, raising financial hurdles for first-time and middle-income buyers,” it said in the report.

Owning a home in today’s conditions is an expensive proposition: If you’re a first-time buyer putting a 7% down payment on a median-price home, that would have been $27,500 as of April 2022, the report said .

That amount “alone would exclude 92% of tenants whose average savings are just $1,500,” the authors added.

To afford a home at the median price, the minimum annual income required to pay the high down payments has increased from $79,600 in April 2021 to $107,600 in April 2022.

Write to: “The savings and income needed to qualify for a home loan have skyrocketed”: 5 reasons the housing market has failed buyers — and it’s not over yet

Brian Lowry

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