With rising housing prices and lowered purchasing power due to inflation, fewer people can afford to buy houses now. This relationship is represented by the Housing Affordability Index, whose rate Estudios Técnicos, Inc. (ETI) determined as 69%, as of June 2022.
From March 2020 to June 2022, the Housing Affordability Index fell by 31 percentage points. Now, on average, families have only 69% of the income needed to qualify for a mortgage loan. The index measures whether a typical family with a median income qualifies for a mortgage loan, considering a down payment of 20%.
A value of 100% means that the average family has the necessary income to qualify for a mortgage loan based on the prevailing average market price. A value higher than this threshold represents enough income to qualify for a mortgage loan, while values below that threshold reflect the opposite.
"Undoubtedly, the increase in the average price of homes and the deterioration in purchasing power due to inflation already affect the people’s ability to buy homes. Figures released by the Office of the Commissioner of Financial Institutions (OCIF, for its Spanish acronym) show that total housing sales contracted from 3,286 in the first quarter of 2021 to 2,776 in the first quarter of 2022. This is primarily attributable to an 18% contraction in sales of used housing units," said Leslie Adames, Director of Analysis and Economic Policy at ETI.
This index stood at 61% in January 2011 and gradually improved, reaching a maximum value of 100% in March 2020. "This improvement was attributed to the historically low interest rate levels that prevailed in the market during this period, as well as to the price correction experienced by the housing market," explained Adames.
He also noted that the index reflects the most recent figures released by OCIF, as of March. The average sales price of a home is estimated at $193,813, with a 30-year fixed interest rate of 4.17%.
"The outlook may become more complicated in the coming year if the upward trend in interest rates on mortgage loans at 30-year fixed rates continues. This rate has already exceeded 6% and will be an additional factor that will add pressure on the affordability of housing in the local market and, consequently, on mortgage originations and home sales,” Adames forewarned.
Unemployment Rate Decreases
Meanwhile, the unemployment rate in Puerto Rico continues to fall. According to statistics released by the Department of Labor and Human Resources (DTRH), local unemployment was at 6.2%, as of May 2022. Labor Secretary Gabriel Maldonado-González explained how numbers like these haven’t been seen since the processing of this data began about 75 years ago.
Last May, the labor participation rate stood at 43.6%, an increase of 0.9 percentage points, year-over-year, and 63,000 people. In total, there are an estimated 1,215,000 recorded people participating in the workforce. On unemployment, the seasonally adjusted amount stood at 75,000 people in May 2022, which represented a decrease of 3,000 people compared to the previous month.