As home prices and mortgage rates have risen further amid the current high-inflation landscape, home affordability in America has sunk to a new low.
Specifically, in 457 of the 578 counties evaluated by ATTOM, home-ownership expenses on typical homes are considered unaffordable for the average American, who earns roughly $71,214 per year.
That’s based on the 28 percent debt-to-income ratio that serves as a guideline for home affordability. The report shows that the typical portion of average wages nationwide required for major home-ownership expenses vaulted in the third quarter to a whopping 35 percent.
“It marks the highest level since 2007 and stands well above the 21 percent figure from early in 2021, right before home-mortgage rates began shooting up from historic lows,” ATTOM said in the report.
Also, in the third quarter, the typical combined monthly cost of mortgage payments, homeowner insurance, mortgage insurance, and property taxes, rose above $2,000 for the first time in U.S. history.
When considered over the entire year, the typical $24,636 cost of the above home ownership expenses now consumes 34.6 percent of the average annual national wage of $71,214.
Inflation to Blame
At the root of the home affordability problem is inflation—and related forces like Federal Reserve interest rate hikes—which has pushed up the cost of buying and owning a home far faster than wages.Last year, as the Fed embarked on its most aggressive interest rate increasing cycle since the 1980s, mortgage rates jumped above 7 percent for the first time in nearly two decades.
“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,” Rob Barber, CEO for ATTOM, said in a statement.
“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,” he added.
After flattening or even dipping slightly from the middle of last year through early 2023, home prices have risen for two consecutive quarters. The national median home price hit $351,250 in the third quarter of 2023, per ATTOM.
Part of what’s been keeping home prices from falling despite the demand-dampening effect of high mortgage rates is a shortage of housing stock.
Inventory Crunch Continues
In September, the active inventory of homes for sales shrank for the third month in a row in year-over-year terms, according to the latest data from Realtor.com.Even though the number of homes listed for sale in September rose month-over-month, active inventory remained 45.1 percent below pre-pandemic levels.
The number of newly listed homes dropped 9.1 percent in September compared to last year, which was bigger than August’s drop of 7.5 percent in year-over-year terms.
“Buyers still struggle with the triple threat of rising listing prices, record-high mortgage rates, and limited inventory, making affordability a continued concern,” Danielle Hale, Chief Economist for Realtor.com, said in a statement.
“The number of homes for sale is likely to remain low as higher mortgage rates leave many homeowners feeling ‘locked in’ to their current rates,” she added.
Homes have been selling quickly while the growth in new construction has been limited, keeping overall inventory low.
Most Affordable States for Homebuyers
When it comes to housing, living expenses, taxes, insurance, and even grocery costs, South Dakota is the winner for the most affordable place to live in the United States, according to a report from Scholaroo.Indiana came in second, followed by Arkansas, Mississippi, and Nebraska.
But while South Dakota scored the overall best location for affordability, the Scholaroo report names West Virginia the leader in affordable homebuying options.
In West Virginia, the average monthly mortgage cost for a single-family home is $879, followed by Arkansas at $947, and Alabama at $970.
At the other end of the spectrum, the average mortgage payments for California, New York, New Jersey, Connecticut, Massachusetts, and Hawaii are all above $2,000.
California had the highest cost with an average of $2,402.
Joshua McGrath, CEO of BHG Real Estate Central in Charleston, West Virginia, has been selling residential real estate for almost 25 years.
“Since the pandemic, I’ve seen more and more people relocating to West Virginia,” Mr. McGrath told The Epoch Times. “In addition to affordability, people are looking for more spacious land. They don’t want a tight community with no yard.”
He said that he’s currently working with a couple from Colorado who’ve decided to move back to their West Virginia roots. “They can sell their home there, relocate here, reduce costs by about 50 percent, and still have a comparable house,” Mr. McGrath said.
Low taxes are another reason that West Virginia scores high on the affordability charts—the average taxes on a single-family home are less than $2,000 a year.
