Property data curator ATTOM released its third-quarter 2023 U.S. Home Affordability Report showing that median-priced single-family homes and condos are less affordable in the third quarter compared with historical averages in 99 percent of counties with enough data to analyze.
The latest trend continues a two-year pattern of homeownership getting more and more difficult for average U.S. wage earners.
Data shows that affordability has worsened across the nation amid a third-quarter increase in home prices and home-mortgage rates that has combined to help push the typical portion of average wages nationwide required for major homeownership expenses up to 35 percent.
“The dynamics influencing the U.S. housing market appear to continuously work against everyday Americans, potentially to the point where they could start to have a significant impact on home prices,” Rob Barber, CEO for ATTOM, said in a release. “We clearly aren’t there yet, as the market keeps going up and the slowdown we saw last year looks more and more like a temporary lull. But with basic homeownership now soaking up more than a third of average pay, the stage is set for some potential buyers to be priced out, which would reduce demand and the upward pressure on prices. We will see how this shakes out as the peak 2023 buying season winds down.”
The latest numbers are considered unaffordable by common lending standards, which call for a 28 percent debt-to-income ratio. It marks the highest level since 2007 and stands well above the 21 percent figure from early in 2021, right before home-mortgage rates began shooting up from historic lows.
Homeownership keeps getting tougher for buyers as average 30-year home-mortgage rates in the U.S. have risen above 7 percent, from under 3 percent in 2021, and home prices have increased again in the third quarter of this year. The nationwide median price of single-family homes and condos is up 2 percent from the second quarter, to a new record of $351,250, ATTOM said.
Typical values around the country have gone up for two straight quarters, from a fallback that lasted from the middle of 2022 into early 2023 and threatened to end the extended boom that has buoyed the U.S. housing market for 11 years running.
Those latest price and interest rate hikes, along with other forces, continue to push the typical cost of major ownership expenses up far faster than wages, resulting in declining home affordability.
Despite the ongoing path of affordability going against buyers, the forces creating that scenario remain in flux, which could push the trend up or down in the coming months.
Home values are up, but at a typically modest third-quarter pace, and mortgage rates have started to settle down. At the same time, though, the stock market has fallen back in the past couple of months after a year of gains, and inflation has ticked upward after a year of declines. Those shifting sands both help and hurt the buying power of house hunters, which could send affordability numbers in either direction.
ATTOM determined affordability for average wage earners by calculating the amount of income needed to meet major monthly homeownership expenses — including mortgage payments, property taxes and insurance — on a median-priced single-family home, assuming a 20 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio. That required income was then compared with annualized average weekly wage data from the Bureau of Labor Statistics.
Compared with historical levels, median home prices in 574 of the 578 counties analyzed in the third quarter are less affordable than in the past. That is up from 568 of the same group of counties in the second quarter of 2023 and 552 in the third quarter of 2022. It remains more than double the number that was less affordable historically two years ago.
Meanwhile, major homeownership expenses on typical homes are considered unaffordable to average local wage earners in 457, or more than three-quarters, of the 578 counties in the report, based on the 28 percent guideline. Counties with the largest populations that are unaffordable in the third quarter are Los Angeles County, Calif.; Cook County (Chicago), Ill.; Maricopa County (Phoenix), Ariz.; San Diego County, Calif., and Orange County, Calif. (outside Los Angeles).
The most populous of the 121 counties where major expenses on median-priced homes are still affordable for average local workers are Harris County (Houston), Texas; Wayne County (Detroit), Mich.; Philadelphia County, Pa.: Cuyahoga County (Cleveland), Ohio; and Allegheny County (Pittsburgh), Pa.