– Soaring mortgage rates and rising home prices have led to the fastest erosion in housing market affordability in modern history.
– First-time homebuyers have been the most affected by this trend.
– The median income needed to afford a home in the U.S. has increased by 15% in the past year and over 50% since the start of the pandemic.
– Wages have only increased by 5% during the same period.
– 30-year fixed-rate mortgage rates have crossed the 8% threshold, compared to an average of 3.56% in March 2022.
– The median price for a U.S. home has increased to $420,000 in August, up from $260,062 at the start of the pandemic.
– The median monthly mortgage payment for the average U.S. buyer is around $2,866, an all-time high.
– All-cash buyers and move-up buyers are less affected by high mortgage rates and home prices.
– Miami and Newark have seen the biggest increase in the income needed to afford a median-priced home, while Austin has seen the smallest increase.
– Inventory levels are low, with 2023 projected to have the lowest number of existing home sales since 2008.
– Affordability issues are expected to continue into 2024, according to Fannie Mae’s chief economist.
A homebuyer must earn $114,627 to afford the median-priced U.S. home, up 15% ($15,285) from a year ago and up more than 50% since the start of the pandemic in early 2022. That’s the highest annual income necessary to afford a home on record. Meanwhile, wages have only increased by 5% since 2022.
To conduct this analysis, Redfin compared median monthly mortgage payments for homebuyers in August 2023 and August 2022.
On Thursday, 30-year fixed-rate mortgage rates crossed the 8% threshold, according to Mortgage News Daily. In March 2022, the 30-year fixed-rate mortgage averaged 3.56%.
Meanwhile, the median price for a U.S. home was $420,000 in August, up 3% compared to August 2022. At the start of the pandemic, the median sales price was $260,062.
In the latest September existing home sales report, the median price remained 2.8% higher than in September 2022. On a month-to-month basis, the payment for the average U.S. buyer hovers around $2,866, an all-time high according to Redfin.
Of course, high mortgage rates and home prices don’t harm all-cash buyers and move-up buyers as greatly.
In terms of metro-level disparities, the quintessential “zoomtown” of Miami is where income needed to buy the median home rose the most. Interesting, Austin, another zoomtown, was the metri that saw the smallest uptick.
In both metro Miami and Newark, homebuyers need to earn 33% more than they did in 2022 to afford a median-priced U.S. home. For instance, homebuyers in Miami now need to make $143,000 to afford the monthly mortgage payment of $3,580. In Newark, buyers need $160,000.
In Bridgeport, Connecticut, Dayton, Ohio, Rochester, New York and Hartford, Connecticut, the necessary income also increased by over 30%. However, Austin was a place where the necessary income to buy a house increased the least, by only 8%. Today, homebuyers need to earn $126,000 to afford a median-priced home in Austin. Meanwhile, buyers in San Francisco and San Jose, the most expensive markets in the country must earn more than $400,000 to afford the median-priced home in their area.
Inventory remains one of the driving forces in this difficult housing market. According to another study by Redfin, 2023 is poised to end with roughly 4.1 million existing home sales nationwide, the lowest number since the housing bubble burst in 2008.
In its latest economic commentary, the Fannie Mae’s Economic and Strategic Research (ESR) group latest commentary, Doug Duncan, Fannie Mae’s senior vice president and chief economist, said that he does not anticipate affordability issues will ease in 2024.
“We expect the higher mortgage rate environment to continue to dampen housing activity and further complicate housing affordability into 2024,” Duncan said.
Property Chomp’s Take:
In recent years, the housing market has experienced significant challenges, with soaring mortgage rates and rising home prices. This has led to a rapid erosion in housing market affordability, particularly affecting first-time homebuyers.
To put things into perspective, a homebuyer now needs to earn $114,627 to afford the median-priced U.S. home. This is a 15% increase from the previous year and more than a 50% increase since the start of the pandemic in early 2022. These figures represent the highest annual income necessary to afford a home on record. In contrast, wages have only increased by 5% during the same period.
The impact of these rising costs is evident when analyzing mortgage payments. In August 2023, the 30-year fixed-rate mortgage rates crossed the 8% threshold, compared to an average of 3.56% in March 2022. Additionally, the median price for a U.S. home in August was $420,000, a 3% increase from the previous year. At the start of the pandemic, the median sales price was $260,062.
This affordability crisis has disproportionately affected first-time homebuyers, as they may struggle to meet the income requirements to afford a home. In some metro areas, the income needed to buy a median-priced home has risen significantly. For example, in Miami and Newark, homebuyers need to earn 33% more than they did in 2022. In Miami, the necessary income is now $143,000, while in Newark, it is $160,000. However, in Austin, the necessary income increased by only 8%, making it one of the more affordable metro areas.
One of the contributing factors to this challenging housing market is the limited inventory. According to Redfin, 2023 is expected to have the lowest number of existing home sales since the housing bubble burst in 2008, with approximately 4.1 million sales nationwide.
Looking ahead, experts do not anticipate a significant improvement in housing affordability in 2024. The higher mortgage rate environment is expected to continue dampening housing activity and complicating affordability. Doug Duncan, Fannie Mae’s senior vice president and chief economist, stated that affordability issues are unlikely to ease in the coming year.
In conclusion, the