New reports from ATTOM and Redfin show just how much housing affordability has worsened compared to a year ago. With home prices rising and mortgage rates hovering around 7.5%, the share of the average income needed to cover the cost of homeownership has climbed to 35%,
That’s according to ATTOM’s Q3 2023 U.S. Home Affordability Report, and it marks the highest share since 2007. According to standard lending practice, it’s also well over the 28% maximum affordable debt-to-income ratio—not to mention the 21% share recorded in 2021, just before mortgage rates started ratcheting up from historic lows.
ATTOM’s report shows median-priced homes are less affordable in Q3 2023, compared to historical averages, in 99% of U.S. counties with enough data to analyze.
Overall, homeownership has been getting tougher for the average U.S. wage earner over the past two years. This is the latest development of a growing trend with no end in sight.
In a recent interview with CNBC, Redfin CEO Glenn Kelman shared some of his perspective on the issue as it relates to Fed rate hikes.
The housing market is just taking a beating because affordability is at a four decade low. And so at some point we just need to catch a break from the Federal Reserve. And that doesn’t seem likely to happen in 2023. Glenn Kelman - Redfin CEO
The latest home price and interest rate hikes, combined with other forces, continue to drive up the cost of major homeownership expenses at a much faster rate than U.S. wages, worsening affordability and putting homeownership out of reach for more people.
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. 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.
Rob Barber - CEO for ATTOM
HOME PRICES ARE GROWING FASTER THAN WAGES IN NEARLY HALF OF THE U.S.
From Q3 2022 to Q3 of this year, annual home price appreciation has outpaced weekly annualized wage increases in 272 (47%) of the 578 counties in ATTOM’s analysis.
Just last quarter—Q2 of 2023—wages were growing faster year over year than home prices, or shrinking less, in three-quarters of those same counties.
Counties where annual home price gains are outpacing wage increases by the largest margins:
1. Cook County, (Chicago), IL
2. San Diego County, CA
3. Orange County, CA (outside Los Angeles)
4. Miami-Dade County, FL
5. King County (Seattle), WA
Counties where annual wage growth is outpacing—or declining less than—annual home price growth:
1. Los Angeles County, CA)
2. Harris County (Houston), TX
3. Maricopa County (Phoenix), AZ
4. Kings County (Brooklyn), NY
5. Dallas County, TX
HOMEOWNERSHIP TAKES UP A LARGER PORTION OF MONTHLY INCOME THROUGHOUT THE U.S.
The share of average local wages needed to cover major homeownership expenses increased year over year in 99% of the 578 counties in ATTOM’s analysis. It increased on a quarterly basis in 94% of them...
