ATTOM, a real estate data company, has released its Q3 2023 U.S. Home Affordability Report, revealing that median-priced single-family homes and condos in 99% of counties across the nation are less affordable compared to historical averages. This trend has been consistent for the past two years, making home ownership increasingly challenging for average U.S. wage earners.
The report shows that affordability has worsened nationwide due to a third-quarter increase in home prices and home mortgage rates. These factors have resulted in the typical portion of average wages required for major homeownership expenses to rise to 35%. According to common lending standards, this number is considered unaffordable, as it exceeds the recommended 28% debt-to-income ratio. This is the highest level since 2007 and a significant jump from the 21% figure in early 2021, just before home mortgage rates began to rise from historic lows.
The combination of rising mortgage rates and home prices has made home ownership increasingly difficult for buyers. Average 30-year home mortgage rates in the U.S. have risen above 7%, up from under 3% in 2021. Additionally, in Q3 of this year, home prices increased by 2%, reaching a new record of $351,250. This marks two consecutive quarters of growth after a brief decline in mid-2022 to early 2023 that threatened to end the 11-year housing market boom.
These price and interest rate hikes, coupled with other market forces, have led to a faster increase in major ownership expenses compared to wages. As a result, home affordability has declined. The typical cost of mortgage payments, homeowner insurance, mortgage insurance, and property taxes now exceeds $2,000 for the first time ever, accounting for 34.6% of the average annual national wage of $71,214. This is a significant increase from 32.3% in Q2 of 2023 and 28.4% in Q3 of last year.
Rob Barber, CEO for ATTOM, commented on the situation, stating, “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.” He also noted that although the market continues to rise and the slowdown observed last year seems like a temporary lull, if home prices reach a point where potential buyers are priced out, it could lead to reduced demand and a decrease in prices.
Despite the ongoing trend of declining affordability for homebuyers, the factors driving this scenario remain in flux, which means the trend could change in the coming months. The report highlights the counties with the largest populations where major expenses on median-priced homes are still affordable for average local workers in Q3 of 2023. These counties include Harris County, TX; Wayne County, MI; Philadelphia County, PA; Cuyahoga County, OH; and Allegheny County, PA.
The report also reveals that home prices have increased in two-thirds of local markets across the country. The national median home price in Q3 of 2023 reached $351,250, marking a 2.1% increase from Q2 of 2023 and a 6.5% increase from Q3 of the previous year. Among the 47 counties with a population of at least 1 million, the largest year-over-year increases in median prices were observed in Fulton County, GA (+23%); St. Louis County, MO (+14%); Miami-Dade County, FL (+11%); Orange County, CA (+10%); and Palm Beach County, FL (+10%).
The report also highlights that home prices are now growing faster than wages in almost half of the U.S. housing market. In 272 out of the 578 counties analyzed, annual price appreciation has outpaced weekly annualized wage changes. This is a significant shift from Q2 of 2023 when wages were growing faster annually than prices in three-quarters of the counties.
The report concludes by emphasizing that historical home affordability has declined further, reaching its worst point in 16 years. Among the 578 counties analyzed, 574 (99%) are less affordable in Q3 of 2023 compared to their historical affordability averages. This is higher than the 96% level observed a year ago and significantly above the 48% level in Q3 of 2021. The historical affordability indexes have worsened quarterly in 94% of these counties, resulting in the nationwide index reaching its lowest point since 2007.
Rob Barber suggests that the impact of these trends on home prices is yet to be seen as the peak 2023 buying season winds down. However, the continuously challenging dynamics of the housing market in the U.S., with declining affordability and rising home prices, may affect prices in the future.