Although mortgage rates fell in November and December, home affordability remained basically flat in the fourth quarter compared with the third quarter and was down slightly compared with a year ago, according to ATTOM’s U.S. Home Affordability Report.
But compared with three years ago, it’s far worse.
The report analyzes a variety of home-related economic data – from home prices to mortgage rates to average income to the average cost of repairs and maintenance – to measure home affordability over time.
Currently it takes about a third of a worker’s salary, based on the national average, to buy a median-priced home in the U.S. – a 16-year high, according to ATTOM.
The report shows that major expenses on a median-priced home – mortgage payments, homeowner insurance, mortgage insurance and property taxes – consume 33.7% of the average national wage in the fourth quarter – a level considered unaffordable by common lending standards.
Both measures – historical and current affordability – have stayed roughly the same from the third quarter to the fourth quarter of this year after trending consistently against home buyers for almost three years. That has happened as major ownership expenses and wages both are unchanged this quarter.
But the two measures are still worse than they were a year ago and far weaker than in 2021.
For example, the portion of average wages nationwide required for typical mortgage payments, property taxes and insurance are up three percentage points from a year ago and 12 points from early in 2021, right before home-mortgage rates began shooting up from their lowest levels in decades.
The latest expense-to-wage ratio continues to sit above the 28% level preferred by mortgage lenders and marks the highest point since 2007.
“The good news is that home affordability has stopped getting tougher around the U.S., at least for the moment,” says Rob Barber, CEO for ATTOM, in a statement. “The bad news is that owning a home remains more of a financial stretch than it’s been for many years. The annual Fall slowdown in the housing market clearly has helped stem the tide working against potential purchasers. Whether that’s just a temporary thing tied to seasonal market patterns is something we won’t know until next year, especially given recent signs that interest rates are coming down. But for now, there is some break into the growing financial stress for house hunters.”
The fourth-quarter trends come at a time of mixed patterns among home prices and home-mortgage interest rates. While average 30-year fixed mortgage rates around the U.S. have grown this quarter from 7.1 to 7.4 percent, the nationwide median home value has slipped almost 3%.
Those two factors have helped to keep home ownership expenses steady from the third to the fourth quarter, which has helped to keep those costs from becoming even more unaffordable for average workers.
Affordability had worsened almost every prior quarter since early 2021 as wage increases were outpaced by rising interest rates and prices that kept going up amid a decade-long market boom.
In slightly more than a third of the markets analyzed, major home-related expenses consumed at least 43% of average local wages – an amount considered seriously unaffordable.
“This remains among the most important bits of fallout from the double-whammy of higher prices and mortgage rates over the past few years,” Barber says. “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 percent 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.”