Buying a home in Puerto Rico getting even harder, Index confirms
The Housing Affordability Index, prepared by firm Estudios Técnicos, Inc. fell to 60% in June, as it became even harder for consumers to qualify for mortgage loans in Puerto Rico due to increased interest rates, more expensive houses and a decrease in family income because of inflation.
“The index, which reached a maximum value of 100% in March 2020, has been consistently deteriorating so far this year. By June 2022 it stood at 60%, a reduction of 40 percentage points since March 2020,” said Leslie Adames, director of Economic Analysis and Public Policy at Estudios Técnicos.
“In essence, what the index is telling us is that a typical family has only 60% of the income necessary to qualify for a mortgage loan, if a down payment of 20% is considered as a conservative assumption,” he said.
The Housing Affordability Index measures whether a typical family that puts up a 20% down payment toward the purchase of a home qualifies, based on median income, for a mortgage loan.
A value equal to 100% means that the family has the necessary income to qualify for a mortgage loan based on the prevailing average price in the market. A value above this threshold assumes that a potential home buyer has more than enough income to qualify for a home loan, while values below this threshold reflect the opposite.
The Index had stood at 65% in March 2011, gradually improving to 100% in 2020 due to the low interest rate environment and the reduction in housing prices that prevailed in the market until 2014, Adames said.
However, these trends have been reversed in the last two years and, “there don’t appear to be any signs in the economy of a positive turnaround that will improve housing affordability in the short term. In March 2022 the Index was at 69% and has now dropped to 60%, the lowest in more than a decade,” he said.
“The housing supply problem that persists in the real estate market is evident. This, and the boom in demand for housing at prices still considered reasonable relative to the peak of the market, as well as low interest rates, have been putting pressure on prices. However, this has changed and not for the better,” Adames said.
The Federal Reserve is reducing liquidity in the financial system by reducing its balance sheet, through Quantitative Tightening, a situation that will contribute to increasing medium and long-term interest rates, he said.
The 30-year fixed mortgage interest rate was at 5.52% in June compared to 5.23% in May and 3.45% in January of the current year, he explained.
That complicates the picture for those who want to buy a house because new homes are more expensive, he said.
“Inflation in construction materials has increased the cost of construction, which will result in more expensive newly built homes for a population whose purchasing power continues to be under pressure due to the inflationary spiral the island is facing,” Adames said.