Housing affordability declines in Puerto Rico as prices, interest rates rise
Estudios Técnicos reports worsening affordability, which drops to 57% in some regions.
A week after Estudios Técnicos released its islandwide Housing Affordability Index (IVA-ETI, in Spanish) analysis, new regional data highlights shifting trends in Puerto Rico’s housing market.
Between 2014 and 2021, the 30-year fixed mortgage interest rate dropped from 4.17% to 2.96%, its lowest level in 50 years. However, by 2023, rates surged to 6.81%, driven by tighter monetary policies and broader economic factors.
The study also notes that while the Trump administration has expressed interest in reducing long-term rates without Federal Reserve intervention, current market conditions make this unlikely.
In 2023, housing affordability varied significantly across regions, ranging from 75% in the north to just 57% in the east and west, the lowest levels recorded in available data. The study highlights that affordability was not a major concern until 2021, when rising home prices and increasing interest rates began to impact accessibility.
The study, led by Leslie Adames, director of economic policy and analysis at Estudios Técnicos, examines housing affordability trends and regional disparities.
“To better understand regional housing market conditions, we categorized home sales data by municipality into five regions, using the average home prices published annually by the Office of the Commissioner of Financial Institutions,” the report states. “These regional classifications are based on U.S. Census Bureau divisions.”
Rising home prices
While rising home prices have been a widespread issue, price trends for new housing units vary by region.
According to estimates from the Office of the Commissioner of Financial Institutions, the average home price in Puerto Rico in 2023 was $197,769. However, some municipalities saw significantly higher values, with prices ranging from $239,174 in Caguas to $1.6 million in Dorado.
Higher-than-average prices were concentrated in the metropolitan area, where eight municipalities recorded prices above $230,000. In the east, Río Grande ($265,444) and Humacao ($1.3 million) had elevated price levels, while in the south, Guayama ($373,433) and Gurabo ($300,084) stood out.
“This combination of high prices, increasing interest rates and limited housing inventory has significantly worsened regional affordability, particularly in the east, metro and west regions,” the report states. “Despite rising home prices in the metro area, demand for housing remained stable. However, home sales in the north, west and south declined between 2018 and 2023. In the east, demand persisted but at a slower pace than in the metro region, with home prices growing significantly — 67% in the east compared to 32% in the metro region,” according to the report.
These findings indicate a concerning trend in Puerto Rico’s housing market, the report adds, as escalating prices and higher borrowing costs are making homeownership increasingly unattainable for moderate-income families.
“Without measures to expand affordable housing supply and improve financing options, accessibility challenges are likely to persist in the coming years,” the study concludes.
