Housing affordability is at the lowest level in over a decade
Typical American paying $607 more per month to own median-priced home, Atlanta Fed data shows
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Marcus and Millichap CEO Hessam Nadji discusses volatility in the current housing market, apartment rent rates falling and the expected Case-Shiller 20-city index data.
Home prices are finally falling after hitting an all-time high in 2022, but ownership is still out of reach for many Americans.
The Atlanta Fed's Housing Affordability Monitor, which compares median home prices and other housing costs with median household income, shows that housing affordability is worse today than during the peak of the 2008 housing bubble. As of December, the median American household would have to spend about 42.9% of their income to afford the median-priced house, according to the index.
That is near the highest share since August 2006, when the median U.S. household had to spend about 41.1% of their income to afford the median-priced house.
It is also well above the 32.6% share just one year ago; at this rate, the typical American is paying about $607 more per month to own a median-priced home compared to last year.
The rapid decline in affordability stems from the highest mortgage rates in years and steep home prices.
During the COVID-19 pandemic, home prices soared at a pace not seen since the 1970s with mortgage rates near a record low. Homebuyers — flush with stimulus cash and eager for more space during the pandemic — flocked to the suburbs.
Demand was so strong, and inventory so low, that at the height of the market some buyers waived home inspections and appraisals or paid hundreds of thousands over asking price.
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The frenzy came to a halt when the Federal Reserve embarked on the most aggressive interest-rate hike campaign since the 1980s as it tried to slow the economy and crush runaway inflation.
Houses in the Harris Ranch community of Boise, Id,, July 1, 2022. (Jeremy Erickson/Bloomberg via Getty Images / Getty Images)
The interest rate-sensitive housing market has so far borne the brunt of tighter monetary policy. Although mortgage rates have fallen from a peak of 7.08% notched in November, they have recently reversed that trend and started to march higher amid interest rate-hike fears. The average rate for a 30-year fixed mortgage climbed to 6.65% this week, according to data from mortgage lender Freddie Mac.
That remains significantly higher than just one year ago, when rates hovered around 3.76%.
Homebuyer demand dried up as consumers confronted the steepest mortgage rates in years, further weighing on home prices. The median price of a home sold in January was $383,249, down 11.5% from a peak of $433,133 in May, according to Redfin.
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Still, even with higher mortgage rates putting home ownership out of reach for millions of Americans, many home prices are still more expensive than they were one year ago. In December, the total value of U.S. houses was still up 6.5% from the same time one year ago.