Roseburg's Affordability Index: From 100 to 58

Over the weekend of March 15-16, 2022 the Federal Open Market Committee (FOMC) completed their second of eight scheduled meetings for 2022. At this meeting the Federal Reserve raised the overnight fed funds rate to a target between 0.25% and 0.5%. This was the beginning of the sharpest fed funds rate increase since 1979-1981.

While the Fed does not directly set mortgage rates, the Fed’s actions do indirectly influence the rates consumers pay on their fixed-rate home loans. The fed funds rate primarily affects short-term loans, such as credit card debt and adjustable-rate mortgages. The Fed can also influence fixed rate mortgages through monetary policy.

As shown in the below graph, the Fed has kept the funds rate near 0.08% since early 2020 to decrease the likelihood of a major U.S. recession. The availability of cheap credit contributed to the insane appreciation of real estate values across our nation. (Federal Funds Effective Rate, Board of Governors of the Federal Reserve System, via FRED.)

In response to the Fed’s subsequent funds rate increases, mortgage rates have risen at a nearly unprecedented pace, ushering in one of the quickest cooldowns on record. The average 30-yr mortgage was 3.29% in January 2022, increasing to 7.32% on October 24. For the average buyer this translates into an additional $800-$1,000 per month in additional interest cost alone. As you can imagine, this has heavily impacted buyer affordability.

The Housing Affordability Index

The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data. To interpret the affordability index, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home, assuming a 20% down payment.

An index above 100 signifies that such a family has more than enough income to qualify for a mortgage loan on a median-priced home, and levels below 100 that they do not have enough income to qualify. Above 100 = more affordable. Below 100 = less affordable.

Using the formula for the national index, I have completed the below chart for our local market in Douglas County. Affordability for local, well-qualified homebuyers has steadily declined since August 2021.

Roseburg and Douglas County Real Estate (October 2022) Market Update

Comparing 2022 to 2021 through September in Douglas County, the average sale price has increased 13.4% from $312,300 to $354,100. In the same comparison, the median sale price has increased 13.9% from $280,000 to $319,000. Inventory increased to 2.9 months in September. Total market time increased to 49 days.