The average rate for a 30-year, fixed-rate mortgage has hovered around 5.5 percent, dropping to 5.3 percent during the week ended July 7, according to Freddie Mac.
That's down from 5.7 percent the previous week but up from 2.9 percent a year earlier, as the Federal Reserve seeks to curtail inflation and while fears of a recession grow. Incomes are not keeping pace with higher borrowing costs.
"That knocks out a pretty substantial portion of potential homebuyers, especially first-time buyers," said Clare Losey, assistant research economist at the Texas Real Estate Research Center at Texas A&M University.
In the San Antonio-New Braunfels metro area, the center estimated that just over one-third of renters could afford to buy a home when mortgage rates were still below 4 percent during the first quarter. But at a rate of 5.5 percent, only about one-quarter of the renters can buy, Losey said.
With a 3 percent mortgage rate, the income needed to qualify for a $235,000 home is about $61,000, she said. At a 5.5 percent rate, qualifying income rises to about $73,000.
"It's pretty difficult to increase your income by that much," Losey said.
Inflation up; inventory down
Meanwhile, prices continue to rise. The median price of a home in the San Antonio area increased from $225,000 just before the pandemic to $305,000 in the recent first quarter, Losey said.
"We have very strong demand for homeownership in Texas that's been bolstered by high population growth," she said. "High home price growth has also been augmented by low inventory of homes for sale."
Owners are staying in their homes longer. Some refinanced their homes while rates were lower and are no longer interested in selling, or they are reluctant to list their homes because they are worried about finding another home to move into.
Families are also concerned about inflation, so buying a home now could "seem a little bit nerve-wracking," Losey said.
Inflation is impeding families' ability to save for down payments. Also, home construction has not kept pace with the number of households Texas is adding. Builders are grappling with increasing costs of construction, such as labor and materials, as well as supply chain snags.
A shortage of developable land, particularly closer to cities' urban cores, also presents a major challenge in the coming years.
"Homebuilding right now is a more expensive, more costly and kind of more cumbersome environment," Losey said. "Developers are going to have to look increasingly to the suburbs to find that raw land.
Sales slide
Losey expects the numbers of homes sold and new listings in the area to continue falling.
Sales declined 2 percent in May and 7.6 percent in April year over year, according to the most recent monthly figures from the San Antonio Board of Realtors.
Home price growth is also anticipated to moderate. Year-over-year growth of 20 to 30 percent is not sustainable as incomes are not increasing that quickly and people are concerned about inflation and a possible recession, Losey said.
"We should see (year-over-year) home price growth revert back to its long-term average of about 4 or 5 percent," she said. "But the question is really how long that's going to take."
Tony Martinez, a real estate agent at RE/MAX North-San Antonio, said he is seeing a slowdown in sales due to higher mortgage rates, concerns about a recession and tight inventory.
Lenders are working on rates, and builders are offering to buy down rates, Martinez said. Summer is also peak season for the housing market.
"I think the expectation still is that if it's a good home, you'll probably see multiple offers, but not as many as you had before, because a little bit of that interest rate is affecting some of the buyers," he said.
"They're holding back a little bit because they're not sure of the economy," Martinez said. "I think (they) are probably being a little more selective also."
Delaying homeownership has social implications. It remains the largest source of wealth for families, especially lower-income households who do not traditionally invest in the stock market or may not have retirement portfolios, Losey said.
They may also postpone marriage, having children and other milestones. Research indicates owning a home can increase voter participation, create stabler communities and lead to better health and education as well, Losey said.
"Having to delay homeownership is simply not accruing the wealth-building benefits," Losey said." It just widens the disparities in who has access to homeownership."
