BAM’s Key Details:
- Despite declines in home prices across the U.S., home affordability has only gotten worse during the fourth quarter of 2022.
- ATTOM released its Q4 2022 U.S. Home Affordability Report. It states median-priced homes are less affordable now compared to historical averages in 99% of counties.
- That percentage is well above the 68% of counties less affordable than the average in the fourth quarter of 2021.
We know home affordability is not on the upswing just yet. But it’s a little discouraging to learn that it’s gotten markedly worse over the past 12 months.
Just a year ago, in the fourth quarter of 2021, home affordability in 68% of counties across the U.S. was worse than historical averages. This year, in the same quarter, that percentage has grown to 99%.
That percentage is up from 29.6% in the third quarter of this year and from 23.8% a year ago.
Considered “unaffordable” by traditional lending standards, that figure is also at its highest point since 2007.
Why is affordability getting worse?
This year’s meteoric rise in mortgage rates has offset the benefits of rising wages and recent drops in home values. The higher cost of borrowing money in 2022 has driven up the cost of ownership on median-priced homes by 10% this quarter—even as the median home price dropped 3% nationwide, following a 4% drop over the summer.
That small decline in home prices and the 1% increase in average wages can’t make up for the impact of current rates on monthly mortgage payments.
Prospective homebuyers – especially first-time buyers – can’t seem to catch a break. For the past two years home prices have appreciated in double digits – 15 to 20 percent a year in some markets. Now that home prices have plateaued and even declined in some markets, buyers are faced with mortgage rates that have doubled, making home purchases even less affordable.
ATTOM’s report defined affordability for average wage earners by determining the minimum income needed to cover major monthly home-ownership costs—mortgage, property taxes, and insurance—on a median-priced single-family home, based on a 20% down payment and a 28% (maximum) debt-to-income ratio.
Annualized average weekly wage data from the Bureau of Labor Statistics fell short of that required minimum income.
Of the 581 counties analyzed in the fourth quarter of 2022, 577 are less affordable than they were in the past. That number is up from 572 in the third quarter of 2022 and well above the 393 in the fourth quarter of 2021—not to mention the 181 from two years ago.
Meanwhile, in Q4 of 2022, based on the 28% debt-to-income guideline, major homeownership expenses are unaffordable to average local wage earners in about three-quarters (427) of those 581 counties.
Affordability at the county level
The most heavily-populated counties that are unaffordable in Q4 2022 are—
- Los Angeles County, CA
- Maricopa County (Phoenix), AZ
- San Diego County, CA
- Orange County, CA (outside Los Angeles)
- Kings County (Brooklyn), NY
The most heavily populated of the 181 counties where major ownership expenses on median-priced homes are still affordable for the average local worker in Q4 2022 are—
- Cook County (Chicago), IL
- Harris County (Houston), TX
- Wayne County (Detroit), MI
- Philadelphia County, PA
- Cuyahoga County (Cleveland), OH
After a decade of gains in home values, rising mortgage rates, inflation near 40-year highs, and a slumping stock market have driven prices down—at least slightly. This is most notable in areas that saw explosive growth during the pandemic.
But those price declines can’t make up for the impact of mortgage rates on monthly homeownership costs.
That said, housing affordability could shift back in favor of buyers if mortgage rates continue trending downward—or if home prices decline further.
There is a scenario where affordability improves as we move through 2023. Wage growth continues to be strong; home prices appear to have stabilized and are even going down slightly; and mortgage rates may have peaked for this cycle, and could go down gradually next year. If those conditions remain in place, the affordability picture is much brighter for a lot of potential buyers.
Home prices still up at least 5% annually in two-thirds of U.S., with quarterly dips in most
Even with the recent decline in the nationwide housing market, median prices for single-family homes and condos in Q4 2022 are still up 5% over Q4 2021 in 63% (361) of the 581 counties in ATTOM’s report.
But typical home values have declined from Q3 to Q4 of 2022 in 80% (463) of those counties.
That drop has contributed to a 3% nationwide decline in the median home price—from $335,000 in Q3 of 2022 to $325,000 in Q4. Compared to the peak of $349,000 set in the second quarter of 2022, that median is now down 6.9%.
ATTOM calculated these figures using data for counties with populations of at least 100,000 and with at least 50 sales of single-family homes and condos in Q4 of 2022.
Among the 48 counties in their analysis with populations of one million or more, the biggest gains in median sale prices from Q4 2021 to Q4 2022 are in—
- Collin County (Plano), TX: up 34%
- Hillsborough County (Tampa), FL: up 18%
- Miami-Dade County, FL: up 17%
- St. Louis County, MO: up 16%
- Palm Beach County (West Palm Beach), FL: up 16%
Among those same counties, those with the biggest declines in median prices from Q4 2021 to Q4 2022 are—
- Philadelphia County, PA: down 13%
- New York County (Manhattan), NY: down 4%
- Honolulu County, HI: down 4%
- Bronx County, NY: down 1%
- Santa Clara County (San Jose), CA: down 1%
Homeownership expenses exceed 28% of median income for 75% of the U.S.
The share of household income needed to cover homeownership has increased throughout the U.S., exceeding the 28% maximum affordable share for three-quarters of the country.
Thanks to rising mortgage rates and persistently high home prices, the share of average local wages needed to cover major ownership expenses on median-priced single-family homes and condos have grown from Q3 to Q4 of 2022 in 97% of the 581 counties in ATTOM”s analysis.
Assuming a 20% down payment, the amount of income needed to buy a median-priced home is over the 28% lending guideline in about three-quarters (427) of those counties.
That’s a notable increase from two-thirds (388) of the same group in Q3 2022 and from less than half (246) in Q4 of 2021.
With the widespread decline in affordability, annual incomes of more than $75,000 are needed to afford major ownership costs on the median-priced homes purchased in Q4 of 2022 in about 50% (291) of the 581 markets in ATTOM’s report.
Historic affordability continues its decline in nearly all U.S. counties
Of the 581 counties in ATTOM’s analysis, 99% are less affordable in Q4 2022 compared to their historic affordability averages—nearly equivalent to the 98% from Q3 2022 but up from 68% for the same counties in Q4 2021.
Historic affordability indexes worsened in 97% of those 581 counties, driving the nationwide index to its lowest point since Q3 of 2007—just before the Great Recession hit.
Counties with populations of one million or more that are less affordable compared to their historic averages (meaning they have an affordability index of less than 100) are—
- Collin County (Plano), TX: index of 50
- Hillsborough County (Tampa), FL: 55
- Wayne County (Detroit), MI: 55
- Mecklenburg County (Charlotte), NC: 56
- Maricopa County (Phoenix), AZ: 56
Counties with the lowest (i.e., worst) affordability index in Q4 2022:
- Rankin County (outside Jackson), MS (index of 44)
- Clayton County, GA (outside Atlanta) (45)
- Jackson County, MS (outside Mobile, AL) (48)
- Benton County (Kennewick), WA (48)
- Newton County, GA (outside Atlanta) (49)
Among counties with populations of one million or more, those where the affordability index has fallen the most from the third quarter of 2022 to the fourth are—
- Collin County (Plano), TX: index down 20%
- St. Louis County, MO: down 13%
- Miami-Dade County, FL: down 12%
- Alameda County (Oakland), CA: down 12%
- Fulton County (Atlanta), GA: down 11%
Top takeaways for real estate agents
With the affordability of median-priced homes reaching its lowest point since 2007, prospective buyers will want to know whether it makes sense to buy a home right now—or whether they’re better served by continuing to save for a higher down payment.
Get familiar with all the advantages and disadvantages of buying a home in your local market to help your clients and prospects make the best decision for them.
Ultimately, you want them to be happy with their decision to buy or sell a home, even if it doesn’t happen in the next 12 months. Keep them updated on changes in their market that affect them, so you’ll be the agent they think of first when they’re ready.