Over the last twelve months, national home values grew by around 13%, according to Zillow. The market was pushed by record-low borrowing rates in 2020 and 2021, as well as a supply constraint due to underbuilding. The enormous demand from first-time buyers is almost as important as the limited fresh supply. The present housing market is also being driven by extraordinarily favorable age demographic trends. Freddie Mac reports 18% more 25-34-year-olds than in 2006. This is a 6.6 million growth from 2006 to now.
The number of high-income renters who can afford to purchase and are of first-time homebuyer age has also increased. But the housing affordability crisis is worsening with rising prices and mortgage interest rates. According to NAR, the Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data. Housing Affordability Index data are provided by NAR solely for use as a reference.
When assessing affordability, your income, debts, and down payment are the most important variables. The amount of home you can afford also depends on the interest rate you receive, as a lower interest rate can drastically reduce your monthly mortgage payment. While your personal financial goals and spending habits can affect your capacity to finance a home, getting pre-approved for a mortgage can help you establish a reasonable housing budget.
According to Zillow, the housing affordability crisis is mounting, but buyers who can weather the storm have more time and options. If your income is 70,000 dollars, you can afford a house for up to $232,216. With a $20,000 down payment, your maximum monthly payment at a current interest rate (6.945%) would be $1,850. The interest rate is the national average from lenders quoting on Zillow for preliminary research purposes only.
Housing Affordability: Third Quarter of 2022
ATTOM, a leading national aggregator of real estate data for land and property data, has released its third-quarter 2022 U.S. Home Affordability Report, which indicates that median-priced single-family homes and condominiums remain less affordable in the third quarter of 2022 compared to historical averages in 99 percent of counties with sufficient data to analyze.
This is significantly higher than the 69 percent of counties that were historically less affordable in the third quarter of 2021 and is another peak hit during the eleven-year housing market boom in the United States. The third-quarter figure remains over the 28 percent mortgage lender threshold. It exceeds last year's 23.4 percent.
The present reduction in the share of salaries needed to finance the typical home nationwide marks the first quarterly gain in almost two years and comes as the median national single-family home price has taken an unusual third-quarter downturn. The median value fell 3% from the second quarter of 2022 to $340,000, the first Spring-to-Summer drop since 2008.
In 574 of 581 counties evaluated during the third quarter of 2022, the median home price is less affordable than it was historically. The most recent figure represents an increase from 568 of the same set of counties in the second quarter of 2022, 398 in the third quarter of 2021, and 284, or less than half, two years earlier. The surge has persisted as the median national home price – despite quarterly declines – is now 10 percent higher than a year ago, although average annual wages across the nation have increased by only 6 percent.
Prices are still high, home-seller earnings are above 50%, and homeowner equity is rising nationwide. Homebuyers are pursuing a very restricted supply of houses. Demand has raised the national median home price faster than salary growth over the past year. But house sales are down as mortgage rates have progressively risen this year from just above 3 percent to nearly 6 percent for a 30-year loan, raising buyer costs. Higher loan rates, inflation, gasoline prices, and a falling stock market strain prospective homebuyers' budgets and threaten to derail or reverse an almost unstoppable climb in property values that began in 2012 when the market began recovering from the Great Recession.
Housing Affordability: Second Quarter of 2022
Here is the summary of Zillow's latest findings on the housing market report and affordability in the U.S.
- Monthly payments on a typical mortgage are more than 75% higher than they were in June 2019.
- Affordability challenges are tamping down the competition in formerly red-hot markets, causing steep drops in pending sales in places like San Jose, Seattle, and Salt Lake.
- Typical U.S. rents have surpassed $2,000 a month for the first time, but growth is easing.
Homebuyers are scarcer than during the pandemic. Today's purchasers face substantial affordability barriers, but those that can or must still buy are benefiting from a more balanced market compared to 2021's pandemic-fueled real estate boom. They have more houses to explore and less chance of a bidding battle. Despite this early rebalancing, the market is still less buyer-friendly than pre-pandemic. The average monthly mortgage payment on a U.S. house is currently 62.3 percent higher than a year ago and 75.7 percent higher than in June 2019.
Affordability issues likely slow property value rise. Annual house value appreciation fell for the third consecutive month in June, to 19.8% from a record high of 20.9 in April. It still beats the 4.6% year-over-year rise in June 2019, before the epidemic. According to Zillow, the average U.S. house is worth $354,165. The monthly price rise fell from 1.6% in April to 1.2% in June (smoothed, seasonally adjusted). A raw monthly price rise of 0.8% predicts future decline.
San Jose, Seattle, San Francisco, and San Diego, all among the five most expensive major metro regions, saw house values decrease from May to June, as did Austin, where values have climbed the most during the epidemic. San Francisco's annual appreciation is 15.4% while Austin's is 25.2%. A strong surge in inventory and high listing price decreases lead to a deceleration in these major markets for the next several months.
The year-over-year inventory shortfall fell from 30.4% in January to 9.1% in June. Inventory is still down 46% since June 2019. San Francisco, Austin, Phoenix, and Seattle, the most expensive metros, have inventory levels closest to 2019 levels. This shows that competition is relaxing faster in these places than elsewhere in the U.S.
Unaffordable alternatives also delay sales. 12 of the 15 main metros with the highest month-over-month declines in pending sales are among the 15 most costly. San Jose (-24.3%), Seattle (-23.9%), and Salt Lake City saw the biggest reductions from May to June (-20.8 percent). 10 of the 15 big metros with the lowest monthly sales declines are among the 15 cheapest.
Buyers have somewhat more time to shop, compare, and consider possibilities. Listings go pending after seven days, so competitively priced properties still move quickly. At 14.8%, the percentage of properties with a price decrease is the largest since November 2019. Salt Lake City (24.1%), Sacramento (21.7%), and Phoenix (20.4%) had the most price reduction.