ATTOM: Home Affordability Worsens in 4Q Despite Falling Home Prices

ATTOM, Irvine, Calif., released its fourth-quarter U.S. Home Affordability Report showing median-priced single-family homes and condos are less affordable compared to historical averages in 99 percent of counties across the nation — far above the 68 percent of counties that were less affordable a year ago.

The report further shows the portion of average wages nationwide required for typical major home-ownership expenses rose to 32.3 percent this quarter. That figure – considered unaffordable by traditional lending standards – rose from 29.6 percent in the third quarter and from 23.8 percent a year ago. It now stands at its highest point since 2007.

The report said affordability has worsened due to rising home-mortgage rates in the U.S., which offset the benefits of rising wages and a recent decline in home values. Higher loan rates in 2022 have pushed up major ownership expenses on median-priced homes by 10 percent this quarter even as the median price of single-family homes and condos nationwide dipped 3 percent this quarter, following a 4 percent drop over the Summer. But lower prices and a 1 percent gain in average wages have been too little to make up for the impact of these increased mortgage payments.

“Prospective homebuyers – especially first-time buyers – can’t seem to catch a break,” said Rick Sharga, executive vice president of market intelligence with ATTOM. “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.”

The report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly home ownership expenses — including mortgage, 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.

Compared to historical levels, median home prices in 577 of the 581 counties analyzed in the fourth quarter are less affordable than in the past. The latest number is up slightly from 572 of the same group of counties in the third quarter, but it is well up from 393 in fourth quarter 2021 and just 181, or less than a third, two years ago.

Meanwhile, major home-ownership expenses on typical homes are unaffordable to average local wage earners during the fourth quarter in 427, or three-quarters, of the 581 counties in the report, based on the 28-percent lending guideline. Counties with the largest populations that are unaffordable in the fourth quarter are Los Angeles County, Calif.; Maricopa County (Phoenix), Ariz.; San Diego County, Calif.; Orange County, Calif. (outside Los Angeles) and Kings County (Brooklyn), N.Y..

“There is a scenario where affordability improves as we move through 2023,” Sharga said. “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.”