Graphic: Housing's outsized impact
The housing industry has a huge effect on the overall U.S. economy, making up between 14% and 15% of real gross domestic product. But the sector has been cooling, with the Federal Reserve aggressively raising short-term interest rates and rolling off maturing Treasury and mortgage-backed securities from its balance sheet. A sector slowdown could affect real estate returns; P&I data show most of the largest plan sponsors reported direct exposure to that asset class.
Higher rates: The 30-year mortgage rate has been above 5% since mid-April, well above the 3.2% rate at the start of 2022, although it has dropped from the 5.8% range in mid- to late June when the 10-year Treasury yield hovered around 3.3%.
Mortgage rates and Treasury yields
Housing prices up: Higher mortgage rates haven’t halted strong home price gains through the first few months of 2022. In May, home prices were 19.7% higher than the prior year, continuing a string of year-over-year double-digit percentage gains that go back to December 2020.
S&P CoreLogic Case-Shiller U.S. National Home Price NSA index
year-over-year change
year-over-year change
Less affordable: The Housing Affordability index fell to 98.5 in June, which means that a family making the median has 98.5% of the income necessary to qualify for a conventional mortgage. Since 2019, principal and interest payments have increased by 84%, but the median family income has risen by only 14%.
Housing affordability
Cooldown: The Pending Home Sales index, based on contract signings, fell by 8.6% in June. This comes after existing home sales have fallen every month since February. Unsold inventory increased to more than three months at the current pace in July, more than double January’s 1.6.
Pending home sales
Sources: U.S. Department of the Treasury, Federal Home Loan Mortgage Corporation, S&P Dow Jones Indices, Federal Reserve Economic Data, National Council of Real Estate Investment Fiduciaries, National Association of Realtors (Copyright ©2022 “Pending Home Sales.” NATIONAL ASSOCIATION OF REALTORS®. All rights reserved. Reprinted with permission. July 27, 2022, https://cdn.nar.realtor/sites/default/files/documents/phs-06-2022-pending-home-sales-07-27-2022.pdf)
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