Homes Still at Unaffordable Highs Despite Settling Prices

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Key Takeaways

  • Home affordability is at its worst point since 2007, according to a measure from housing data provider ATTOM.
  • Major homeownership expenses require one-third of the average wage nationwide, a 16-year high.
  • Since 2007, the expense-to-wage ratio has remained above the 28% level preferred by mortgage lenders.

Single-family homes and condos in 99% of counties with sufficient data to analyze remain less affordable than historical averages.

That’s according to ATTOM’s fourth-quarter 2023 Home Affordability Report. Since 2021, home ownership has demanded historically large portions of wages across the country. The trend maintained a 16-year high hit last quarter as expenses require one-third of the nationwide average wage.

A median-priced home consumes 33.7% of the average national wage in the fourth quarter, which is unaffordable by most lenders’ standards. According to Freddie Mac, a buyer’s housing expenses should be less than 28%.

Costs to Own a Home Significantly Worse Than in 2021

Major ownership expenses and wages didn’t change much from those in the third quarter, despite sitting at a historically high level.

“The good news is that home affordability has stopped getting tougher around the U.S., at least for the moment. The bad news is that owning a home remains more of a financial stretch than it’s been for many years,” said Rob Barber, CEO of ATTOM, in a prepared statement.

A typical mortgage payment, property taxes, and insurance are taking up three percentage points more of the average wage than a year ago and 12 points more than early in 2021, just before home mortgage rates started rising.

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Wages Aren’t Keeping Up

The report found that although home values have settled down, annual price changes have outpaced weekly wage growth in 294, or 50.7%, of the 580 counties examined.

About 54% of the 580 counties analyzed saw their major expenses on median-priced, single-family homes increase from the third to the fourth quarter of 2023. In about 88% of those markets, they remain up annually.

The median home price in the United States is $335,000 in the fourth quarter of 2023, which requires a wage of $86,404 per year to be affordable. This assumes a $67,000 down payment and a $268,000 loan, to allow wage earners not to spend more than 28% of their pay on mortgages, property taxes, and insurance.

But, approximately 33% of the average annual national wage of $71,708 is consumed by mortgage payments, homeowner insurance, and mortgage insurance. Both expenses and average wages have risen less than 1% between the third and fourth quarters of 2023. Despite this, the latest percentage is up from 30.9% in the fourth quarter of last year and is far above the recent low point of 21.4% in the first quarter of 2021.

“Even though there are signs of better times for buyers this quarter, the high expense-to-wage ratio is still a stretch in most of the country for average workers who don’t have a lot of other financial resources like significant savings or investments. Lenders will often push the 28% rule, especially if buyers have lots of financial resources outside of wages; we now are seeing fully three-quarters of markets around the country pushing the basic lending benchmark,” Barber said.

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