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Interest rate hikes worsen access to affordable housing in Puerto Rico

The ongoing increases in home prices and in mortgage interest rates make it increasingly difficult for families to qualify to buy their homes in Puerto Rico, according to the most recent Affordable Housing Index published by local economic analysis firm Estudios Técnicos Inc.

“The downward trend in the value of the Affordable Housing Index persists, decreasing from 64% in August to 58% in September and to 54% in November according to our projection,” said Economist Leslie Adames, director of Economic Analysis and Policy at Estudios Técnicos.

“Of course, this projection could change once the Office of the Commissioner of Financial Institutions publishes the official figures on the real estate market. However, it gives a good indication of where things are going in terms of affordability as a result of rising interest rates and rising median home prices, and it’s not a good thing,” he said.

The Affordable Housing Index measures whether a typical family contributing 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 based on the average price prevailing in the market.

A value greater than this threshold means they have more than enough income to qualify for a home loan, while values less than that threshold reflect the opposite.

The Index’ most recent result shows that a typical family has only 54% of the income needed to qualify for a home loan, assuming a down payment of 20%. Prior to this, the Index had stood at 62% in December 2010. At that time, the 30-year fixed mortgage interest rate was 4.71% and the increase in the price of housing units now was unforeseen, Adames explained.

In November 2022, the interest rate for mortgage loans was 6.81%, doubling the rate of 3.07% to November 2021, while the price of housing units for sale increased by 10% per year for the 12-month period that ended in the third quarter of 2022 versus 5.9% Y-O-Y for the second quarter according to the Federal Housing Financing Agency’s Home Price Index.

“The problem of affordability is very worrisome since those factors that affect its evolution don’t seem to ease. Not only is there a risk that the interest rate will continue to increase in the short term, but inflation continues to affect consumer budgets and the increase in average housing unit prices persists,” he said.

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This story was written by our staff based on a press release.

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