The unforgiving blight of inflation: Few families qualify to buy a home

The massive gap between inflation starting to hit Puerto Ricans’ incomes, rising home prices, increasing mortgage interest rates and the island’s limited home inventory has created a perfect storm for fewer families eligible to buy a home.

This was revealed through an analysis conducted by Technical Studies Corporation (ETI)This year, the Affordable Housing Index declined to 69% due to the continued rise in housing prices and the economic downturn caused by inflation, which affected the purchasing power of consumers and their ability to qualify for mortgage loans.

The Affordable Housing Index evaluated by ETI took into account three factors: interest rates on 30-year home loans; The average price of residential units (new and used); Consider that a person interested in issuing a mortgage loan will pay 20% down payment.

According to the Statistical Report of the Financial Institutions Commissioner’s Office, the average selling price of existing or used homes – given 14,747 mortgages created in this line between January 2021 and March 2022 – is $176,690. In the case of new construction, the average of 1,313 units sold in the same period was $245,086. In this equation, it should be borne in mind that according to federal census data, the median income in Puerto Rico is $25,104.

“What is happening now is that the average home price is going up, despite the fact that interest rates have continued to fall until recently. That translated into the value of the Affordable Housing Index reaching 69% for the month of March, with the additional factor being that Rates are also on the rise and last week were above 6%. In other words, the typical household has only 69% of the income needed to qualify for a mortgage loan, factoring in a 20% down payment,” said economist Leslie Adams, Director of ETI Analysis, stressing that the index is between 90% to 100% between March 2020 and October 2021.

What are the implications of these results?

The President and Chief Operating Officer of ETI, Graham Castillo, explained the matter with the following example: When interest rates were at 3% last year, a consumer with a family income of $40,000, excellent credit, and 25% of that income to pay the house, would be eligible to purchase a $200,000 unit. The problem today is that that same person, with the interest rate over 6%, could use the available 25% to pay a mortgage on a $140,000 unit. He is no longer eligible for $200,000. And we’re talking about you’ll pay the same $838 in both examples, without including insurance and other additional things.”

“The panorama could get complicated next year, if the upward trend in mortgage interest rates at 30-year fixed rates continues. This rate has already exceeded 6% and will be an additional factor that will add pressure on housing affordability in the local market. , and thus on mortgage facilities and home sales,” Adams said.

Although both economists emphasized that interest rate hikes – which are frequent in the market and are expected to rise further in the future – are part of the problem, there are other factors that influence the entire scenario.

The problem is that it is mixed with strong inflation in terms of housing construction and rehabilitation. Not only do I not qualify for a mortgage, but when I qualified a few years ago, this affordable housing was $140,000 and rose to $185,000. And what we have been able to note is that at the moment it is not possible to build new affordable housing for less than $185,000. Castillo pointed out that this is impossible for projects with high costs of inflation, noting that the house of social interests generally consists of two to three bedrooms, two bathrooms, a family room, a kitchen, a living room and a dining room.

It should be noted that the Federal Housing Department (HUD) determines that a home is “affordable” if the family does not invest more than 30% of its income in expenses related to that home. Instead, since 2021 data provided by ETI warns that in more than 300,000 households in Puerto Rico, more than 30% has been spent on expenses related to their stay. At that time, reference was made to the fact that there are 117,696 homes occupied by tenants and 205,074 homes by owners, for a total of 323,043.

In terms of affordable housing development, economists say programs that provide government subsidies will be essential, both for the rental market and for selling homes.

Technical Studies, Inc. (ETI) is a planning, research, market strategy, social policy and economic consulting firm in Puerto Rico. With an interdisciplinary approach (economics, planning, law, statistics, management, finance, marketing, communications, data analysts, scientists, programmers, geographers, among others), it enriches the results of studies.

Attention in the Department of Housing

Housing Secretary William Rodriguez acknowledged that the agency is analyzing the market and the increase in mortgage interest and the impact it can have on the inventory of affordable housing for the average Puerto Rican family.

“At the Department of Housing, we remain vigilant and closely analyze the increase in mortgage interest. Specifically, its impact on the availability of housing for a Puerto Rican family, especially those with low and middle incomes,” the official told Primera Hora in writing.

He added that among some of the housing-provided initiatives that are currently available, the Direct Buyer Assistance (HBA) program is the most relevant and important. This program provides the opportunity for buyers to receive up to $60,000 for down payment and closing costs. To date, this program has benefited more than 2,800 families in Puerto Rico.

William Rodriguez, Secretary of the Department of Housing (BrandStudio)

Figures from the Financial Institutions Commissioner’s Office show that total home sales contracted from 3,286 in the first quarter of 2021 to 2,776 in the first quarter of 2022, mainly due to a 18% contraction in condominium sales.

Currently, 56 financial institutions on the island can start the mortgage process so that interested buyers can get a property with the economic benefit of the program. For accessibility for those interested, housing has drawn up a list with contact forms for all participating institutions in the Buyer Assistance Program section of the page, where it will also be possible to obtain more details with new evidence from the program and income requirements,” Rodriguez explained.

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