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Will Affordable Mortgages Ever Return?

Mortgage affordability has improved following rate drops and cooling prices, but is still far off from historic affordability levels. There is no clear…



  • Mortgage affordability has improved following rate drops and cooling prices, but is still far off from historic affordability levels.
  • There is no clear path to restoring pre-2022 affordability, especially as rates remain high. 
  • While market conditions might not be in buyers’ favor, there are creative options for buyers to make their own mortgage more affordable. 

Mortgages were affordable…

Mortgage affordability has remained top of mind for home buyers, sellers and homeowners since mortgage rates started to rise in early 2022. The red-hot housing market of 2020 and 2021 that was largely influenced by artificially low rates allowed many shoppers to downplay the rising cost of housing, as mortgage payments remained affordable. Efforts from the Federal Reserve to try and keep the U.S. economy out of a major recession after the onset of the COVID-19 pandemic resulted in historically low mortgage rates. Easy financial conditions helped to stimulate spending and housing prices surged following the huge boost in demand. Throughout 2020, while home prices were at record highs and growing at a historically fast clip, monthly mortgage payments grew only modestly and remained within reach of those with enough means for a down payment and to win a bidding war. 

…until rates started to rise

That dynamic shifted quickly in 2022 as mortgage rates started to rise. Inflation caught up to the stimulated economy and those ultra-low interest rates hit their end. As the Fed increased its benchmark interest rate and began offloading some assets from its balance sheet, mortgage rates followed and those 3% mortgage rates were soon replaced with rates over 6%. The reality that homes were now upwards of 30% more expensive than in early 2020 was now very apparent. The cost of a monthly mortgage payment (including taxes and insurance) topped $2,000 per month last fall for the first time ever. 

While the cost of goods, including homes, was rapidly rising, incomes were not keeping up. And that started to impact home buyers’ ability to afford monthly mortgage payments, beyond the hurdle of saving for a seemingly ever-growing down payment. Mortgage affordability took the spotlight as the main focus and barrier for potential buyers, and sellers who are looking to buy again. 

In October 2022, at the peak of unaffordability, a household buying the nation’s typical home would have been expected to spend 33.2% of its income on a total monthly mortgage payment (including taxes and insurance) — and that’s with a 20% down payment that we know most buyers don’t have. This was far beyond the historic average – as measured from 2005 to 2020 – of 21.7% of income spent on a mortgage and above the widely-cited 30% threshold used to gauge whether a household can afford their monthly housing payments. 

Mortgage affordability will get better, but not that much better

Since then, falling rates (at least falling from the peak above 7%) and stabilizing home prices have helped affordability improve and further, albeit modest, improvements are likely over the next year. Our baseline expectation (dark navy line in the above graph) is that, by the end of 2023, prices will moderate and rates will stabilize below their 7% peak, a combination that will result in improved affordability for home shoppers. 

A higher than expected uptick in mortgage rates (blue line) would likely cause prices to fall, but low levels of for-sale inventory would likely cap any meaningful price decline and ultimately minimize the impact on affordability. What’s more, mortgage rates have a larger impact on monthly payments than prices, so the uptick in rates in this scenario would outweigh the benefits afforded by modestly-falling prices. 

Conversely, a decline in mortgage rates would likely stoke home buyer demand and encourage prices to start climbing again (gold line). This scenario of falling rates but accelerated price growth would likely improve affordability some of the next year, but it’s  almost a certainty that the share of income spent on a total monthly payment will remain far higher than the historic average. 

All told, regardless of any realistic path forward for mortgage rates and home prices, mortgage affordability will remain a barrier for many potential home buyers and sellers.

Affordability depends on where you live

Some markets have seen prices moderate enough to make a significant impact on mortgage affordability. In some typically more affordable markets, such as Baltimore and Chicago, projected affordability a year from now in each of the scenarios described above is right around the historic average. This means potential buyers in these markets have seemingly lower hurdles to jump over for affordability. However, as home prices in these two markets only just recently passed the previous peak from the pre-2008 financial crisis, lower levels of home equity and thus household wealth could make affordability more challenging for some. 

Other more expensive markets, like Los Angeles and Sacramento, are also projecting affordability in line with historic averages in the next year. But in Los Angeles, for example, the historical average share of income spent on a mortgage is over 50%. So coming back to normal doesn’t necessarily mean coming back to affordability. 

In other markets, the super-charged price growth over the past three years has created a significant imbalance in mortgage affordability that isn’t projected to improve in a meaningful way over the next year. Salt Lake City is one such market, where prices have risen nearly 40% since pre-pandemic, leading to a massive spike in the share of income needed for a monthly mortgage payment – something that is unlikely to change in the next year. 

Affordability doesn’t only rely on market movements

While mortgage affordability as a whole might not have an optimistic outlook for the next year, there are many policies and products that can help potential buyers step over the financial hurdle and land in homeownership. 

Tap into down payment assistance 

Down payments used to take the spotlight when talking about for-sale housing affordability, and with the recent jumps in home values, down payments are still a significant challenge for many aspiring homebuyers. However, help is available. Thousands of down payment assistance programs exist across the country that many potential buyers don’t know they qualify for. 

Even if a potential buyer has enough money for a down payment, utilizing available down payment resources can still be really beneficial. Many buyers struggle with pre-existing debt, like student loans, which can increase their debt-to-income ratio and make it more challenging to qualify for a mortgage or more likely that they will be quoted a higher mortgage rate. Using down payment assistance funds to make that initial payment, and turning existing savings to paying off other debts, might help some buyers find their footing in this market. 

Pay down your mortgage rate 

Another way extra cash up front can save money in the long run is by purchasing points, which many buyers already turned to in 2022. Paying for points on a mortgage is essentially paying to lower the mortgage rate. Each point costs 1% of the loan value and lowers the mortgage rate by 0.25 percentage points. So on a $300,000 loan with a 6.5% rate, a point would cost $3,000 and lower the rate to 6.25%, saving roughly $50 a month. In 2022, nearly 45% of successful mortgage buyers [1] purchased points, compared to 29.6% in 2021, 28.4% in 2020 and 27.3% in 2019. As interest rates started rising, many buyers jumped on the opportunity to save on their monthly payment. 

[graphic: maybe just a nice looking table with that data from the % of mortgages using points over the years stats? This section is a lot of text and needs something to break it up]

Consider different mortgage products

Many lenders offer mortgage products to help buyers achieve affordability. Two common examples of such products are 2-1 buydowns and adjustable-rate mortgages. Rate buydowns are often negotiated to be given by the seller, where the seller would offer a concession at closing to essentially pay the difference in a monthly mortgage payment with a rate that is two points lower for the first year and one point lower in the second year. Buyers win with these products because their upfront payments are lower for the first two years, and sellers win because they walk away with more money than if they had dropped their price to achieve the same level of affordability for buyers. 

Adjustable-rate mortgages – which allow borrowers to lock in a slightly lower rate for 5-10 years before adjusting to the market rate – can make a significant difference in monthly payments. These loans have much stricter regulations and are more transparent than they were earlier this century. In 2022, 12.5% of successful mortgage buyers [2] used adjustable-rate mortgages to help lower their initial rate, and the median time from loan origination to when the interest rate would change was seven years. So mortgage buyers in 2022 who used adjustable-rate mortgages have until 2029 to refinance or face a higher or lower rate on their mortgage, depending on what the market is doing, which is a long period to benefit from the lower upfront rate today. 

This market doesn’t have to be against you 

While the market might not be in seemingly anyone’s favor and high level mortgage affordability isn’t likely to return to normal healthy levels anytime soon, there are ways that buyers and sellers can utilize existing resources to make affordability work for them. Other avenues to consider beyond the available mortgage products and resources might be to branch out to different property types. A single-family home is not the only viable or desirable option for many buyers, which is another reason why zoning reform (i.e., making it easier to build homes and to build higher density homes) would have a big impact on affordability. But in a volatile market like the one we are living in now, where day-to-day rate fluctuations can be the difference between getting approved for a mortgage and being turned away, being financially prepared and having a strong local agent on hand for when the right moment presents itself is as crucial as calling on the various policies and products available to alleviate affordability constraints.  




The mortgage affordability data used both Zillow and public data sources. Zillow data was used for historical home values via the Zillow home value index, as well as forecasted home values from the Zillow Home Value Forecast. Public data from Freddie Mac’s Primary Mortgage Market Survey, accessed via FRED at the St. Louis Fed, was used for historical interest rates and merged with mortgage rate forecasts from Moody’s. Similarly, household income data was used from the American Community Survey for historical data, and was extrapolated forward using core CPI growth and forecasted core CPI growth from Moody’s. The mortgage affordability metric is calculated as the share of income spent on a mortgage payment.


[1] Successful buyers here are defined as conventional home purchase mortgage borrowers who had a loan originated on a primary home, from the Home Mortgage Disclosure Act database data pulled on 04/17/2023.
[2]  Successful buyers here are defined as conventional home purchase mortgage borrowers who had a loan originated on a primary home in 2022, from the Home Mortgage Disclosure Act database data pulled on 04/17/2023.

The post Will Affordable Mortgages Ever Return? appeared first on Zillow Research.

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Generative AI’s growing impact on businesses

Over recent years, artificial intelligence (AI) has gained considerable traction. And on the back of the resultant excitement, price-earnings (P/E) ratios…



Over recent years, artificial intelligence (AI) has gained considerable traction. And on the back of the resultant excitement, price-earnings (P/E) ratios for stocks even remotely related have soared. Is the excitement premature?

McKinsey recently  published an article titled The State of AI in 2023: Generative AI’s Breakout year, draws on the results of six years of consistent surveying and reveals some compelling findings. My takeaway is that service providers are buying the chips and working furiously to offer AI-enhanced solutions, but corporate customers are still some way off embedding those solutions in their own workflows. There exists a lack of understanding, necessitating more education.

The highest-performing organisations however, as showcased in the research, are already adopting a comprehensive approach to AI, emphasising not just its potential but also the requisite strategies to harness its full value.

Irrespective of the industry, and of whether they are service organisations or manufacturers, the most successful industry leaders strategically chart significant AI opportunities across their operational domains. McKinsey’s findings suggest that despite the buzz surrounding the innovations in generative AI (gen AI), a substantial portion of potential business value originates from AI solutions that don’t even involve gen AI. This reflects a disciplined and value-focused (cost) perspective adopted by even top-tier companies.

One of the critical takeaways from McKinsey’s research is the integration of AI in strategic planning and capability building. For instance, in areas like technology and data management, leading firms emphasise the functionalities essential for capturing the value AI promises. They are capitalising on large language models’ (LLM) prowess to analyse company and industry-specific data. Moreover, these companies are diligently assessing the merits of using prevailing AI services, termed by McKinsey as the “taker” approach. In parallel, many are working on refining their AI models, a strategy McKinsey labels the “shaper” approach, where firms train these models using proprietary data to build a competitive edge.

But the number of organisations doing so are relatively few (Figure 1.)

Figure 1. Gen AI is mostly used in marketing, sales, product and service development

Figure 1 Gen AI is mostly used in marketing, sales, product and service development

Nevertheless, the latest McKinsey global survey reveals the burgeoning influence of gen AI tools is unmistakably evident. A mere year after their debut, a striking one-third of respondents disclosed that their companies consistently integrate gen AI in specific business functions. The implications of AI stretch far beyond its technological aspects, capturing the strategic focus of top-tier leadership. McKinsey quotes, “Nearly one-quarter of surveyed C-suite executives say they are personally using gen AI tools for work,” signalling the mainstreaming of AI in executive deliberations.

In other words, however, a common finding is individuals are using gen AI personally, but their organisation have yet to formally incorporate it into daily processes and workflows. This, despite the “three-quarters of all respondents expect[ing] gen AI to cause significant or disruptive change in the nature of their industry’s competition in the next three years.”

As an aside, AI’s disruptive impact is expected to vary by industry.

McKinsey notes, “Industries relying most heavily on knowledge work are likely to see more disruption—and potentially reap more value. While our estimates suggest that tech companies, unsurprisingly, are poised to see the highest impact from gen AI—adding value equivalent to as much as 9 per cent of global industry revenue—knowledge-based industries such as banking (up to 5 per cent), pharmaceuticals and medical products (also up to 5 per cent), and education (up to 4 per cent) could experience significant effects as well. By contrast, manufacturing-based industries, such as aerospace, automotive, and advanced electronics, could experience less disruptive effects. This stands in contrast to the impact of previous technology waves that affected manufacturing the most and is due to gen AI’s strengths in language-based activities, as opposed to those requiring physical labour.”

Moreover, the journey with AI isn’t devoid of challenges. McKinsey’s findings highlight a significant area of concern: risk management related to gen AI. Many organisations appear unprepared to address gen AI-associated risks, with under half of the respondents indicating measures to mitigate what they perceive as the most pressing risk – inaccuracy.

Drawing from McKinsey’s comprehensive survey, it’s evident that while the realm of AI, particularly gen AI, presents immense potential, it’s a domain still in its very early stages. Many organisations are on the brink of leveraging its power, but there’s still a considerable journey ahead in terms of risk management, strategic adoption, and capability building. As the landscape continues to evolve, McKinsey’s research offers a crucial ‘Give Way’ sign in the roadmap for businesses to navigate the AI frontier.

And that means there is every possibility the boom in AI-related stocks is a bubble. Stock market investors are notoriously impatient and if the benefits (measured in dollars) aren’t coming through investors will recalibrate their expectations. There is every possibility AI is as transformative for the world as promised, but the stock market’s journey is likely to be rocky, inevitably rewinding premature expectations ahead of more sober assessments.  Think, ‘fits and starts’.

As a result, investors should have ample opportunity to invest in the transformative impact of AI at reasonable prices again and shouldn’t feel compelled to pay bubble-like prices amid a fear of missing out.

The full McKinsey article can be read here

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Lights Out for Stocks and Bonds? Not So Fast.

The stock market suddenly has the look of a wounded prize fighter. And the bond market is bordering on being dysfunctional.  In a word, the market is…



The stock market suddenly has the look of a wounded prize fighter. And the bond market is bordering on being dysfunctional.  In a word, the market is disoriented. Disorientation leads to mistakes.

Don't be fooled. From an investment standpoint, this is one of those periods where those who stay vigilant and pay attention to developments will be in better shape than those who remain confused by circumstances.

As I noted last week: "The relationship between interest rates and stocks is about to be tested, perhaps in a big way. Observe the tightening of the volatility bands (Bollinger Bands) around the New York Stock Exchange Advance Decline line ($NYAD) and the major indexes. This type of technical development reliably predicts big moves. The real arbiter may be the US Treasury bond market. And the place where a lot of the action may take place once bonds decide what to do next may be the large-cap tech stocks. Think QQQ."

Yeah, buddy!

Bond Yields Trade Outside Normal Megatrend Boundaries

Big things are happening in the bond market, which could have lasting effects on stocks and the US economy.

I've been expecting a big move in bond yields, noting recently that yields on the 10-Year US Treasury Yield Index ($TNX) were "on the verge of breaking above long-term resistance," while adding that if such a move took place, it "would likely be meaningful for all markets; stocks, commodities, and currencies."

Well, it happened; after the FOMC meeting and Powell's post-mortem (uh, press conference), TNX blew out all expectations and broke above the 4.4% yield area in a big way, marking their highest point since 2007.  It was such a big move that it may be an intermediate-term top.  At one point in overnight trading on September 21, 2023, TNX hit the 4.5% level. But the current selling in bonds is way overdone, which means that at least a temporary drop in yields is on the cards.

Here's what I mean. The price chart above portrays the relationship between TNX and its 200-day moving average and its corresponding Bollinger Bands. As I noted in my recent video on Bollinger Bands, this is a crucial indicator for pointing out trends that have gone too far and are ripe for a reversal.

In this case, TNX blew out above the upper Bollinger Band, which is two standard deviations above the 200-day moving average. That move is the magnitude of a Category 5 hurricane on steroids and amphetamines. It's also unlikely to remain in place for long unless the market is completely broken.

The price chart suggests we may see a similar situation to what we saw in October 2022 when TNX made a similar move before delivering a nifty fall in yields, which also marked the bottom for stocks.

Meanwhile, as described below, the S&P 500 ($SPX) is reaching oversold levels not seen since the October 2022 and the March 2023 market bottoms.

Stay awake.

Oil Holds Up Better Than QQQ For Now

A great way to regroup after a tough trading period is to first look for areas of the market that are exhibiting relative strength. Currently, the oil sector fits the bill. Second, it pays to look for beaten-up sectors where recoveries are happening the fastest. At this point, it's still early for that part of the equation to develop, as too many traders are still shell-shocked.

Starting with a look at West Texas Intermediate Crude ($WTIC), prices are holding above $90 as the supply for diesel and fuel is well below the five-year average.  And yes, U.S. oil supplies continue to tighten while the weekly rig count falls.

The NYSE Oil Index ($XOI), home to the big oil companies such as Chevron Texaco (CVX), had a mild reaction to the heavy selling we saw in the rest of the market. XOI looks set to test its 50-day simple moving average in what looks to be a short-term pullback.

Chevron's shares barely budged earlier in the week despite an ongoing, albeit short-lived strike by natural gas workers at its Australian facilities. That's a strong showing of relative strength. You can see that short sellers are trying to knock the stock down (falling Accumulation/Distribution line), but buyers are not budging as the On Balance Volume (OBV) line is holding steady.

On the other hand, the very popular trading vehicle the Invesco QQQ Trust (QQQ) broke below the key support level offered by the $370 price point and its 20 and 50-day simple moving averages. This is an area that I highlighted here last week as being critical support. It now faces a test of the support area at $355. A break below that would likely take QQQ and the rest of the market lower.

An encouraging development is that the RSI for QQQ is nearing 30, which means it's oversold. Let's see what happens next. You can also see a similar pattern in the ADI/OBV indicators to what's evident in CVX above, which suggests that when the shorts get squeezed, it could be an impressive move up.

Join the smart money at Joe Duarte in the Money  You can have a look at my latest recommendations FREE with a two-week trial subscription.

And for frequent updates on the technicals for the big stocks in QQQ, click here.

The Market's Breadth Breaks Down and Heads to Oversold Territory

The NYSE Advance Decline line ($NYAD) finally broke below its 20 and 50-day simple moving averages and is headed toward an oversold reading on the RSI, which is approaching the 30 area.

The Nasdaq 100 Index ($NDX) followed and is not testing the 14500–14750 support area. ADI is falling, but OBV is holding up, which means we will likely see a clash between short sellers and buyers at some point in the future.

The S&P 500 ($SPX) is in deeper trouble as it has broken below the key support at 4350 and its 20 and 50-day moving averages. On the other hand, SPX closed below its lower Bollinger Band on September 22, 2023, and is nearing an oversold level on RSI.  Still, the selling pressure was solid as ADI and OBV broke down.

VIX Remains Below 20  

The Cboe Volatility Index ($VIX) is still below the 20 area but is rising. A move above 20 would be very negative.

When VIX rises, stocks tend to fall as it signifies that traders are buying puts. Rising put volume is a sign that market makers are selling stock index futures in order to hedge their put sales to the public. A fall in VIX is bullish as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.

Liquidity is Tightening Some

Liquidity is tightening.  The Secured Overnight Financing Rate (SOFR) is an approximate sign of the market's liquidity. It remains near its recent high in response to the Fed's move and the rise in bond yields. A move below 5 would be bullish. A move above 5.5% would signal that monetary conditions are tightening beyond the Fed's intentions. That would be very bearish. 

To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I've made my NYAD-Complexity - Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options

Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

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Bitcoin Mining Can Reduce Up To 8% Of Global Emissions: Report

Bitcoin Mining Can Reduce Up To 8% Of Global Emissions: Report

Authored by Ezra Reguerra via,

A paper published by the…



Bitcoin Mining Can Reduce Up To 8% Of Global Emissions: Report

Authored by Ezra Reguerra via,

A paper published by the Institute of Risk Management (IRM) concluded that Bitcoin has the potential to be a catalyst for a global energy transition. 

IRM Energy and Renewables Group members Dylan Campbell and Alexander Larsen published a report titled “Bitcoin and the Energy Transition: From Risk to Opportunity.”

The paper argued that while BTC was perceived as a risk because of its energy consumption, it can also catalyze energy transition and lead to new solutions for energy challenges worldwide.

Within the report, the authors also highlighted the important function of energy and the increasing need for reliable, clean and more affordable energy sources.

Despite the criticisms of Bitcoin’s energy intensity, the study provided a more balanced view of Bitcoin by showing the potential benefits BTC can bring to the energy industry.

Amount of vented methane that can be used in Bitcoin mining. Source: IRM

According to the report, Bitcoin mining can reduce global emissions by up to 8% by 2030. This can be done by converting the world’s wasted methane emissions into less harmful emissions. The report cited a theoretical case saying that using captured methane to power Bitcoin mining operations can reduce the amount of methane vented into the atmosphere. 

The paper also presented other opportunities for Bitcoin to contribute to the energy sector.

“We have shown that while Bitcoin is a consumer of electricity, this does not translate to it being a high emitter of carbon dioxide and other atmospheric pollutants. Bitcoin can be the catalyst to a cleaner, more energy-abundant future for all,” the authors wrote.

According to the report, Bitcoin can contribute to energy efficiency through electricity grid management by using Bitcoin miners and transferring heat from miners to greenhouses.

Tyler Durden Sun, 09/24/2023 - 13:50

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