Another Spike in Median Home Prices Causes Crisis

Major Home-Ownership Expenses Consume One-Third of Average Wage; Historic Affordability Hits Low Point Since 2007; Affordability Declines as Median Home Price Spikes 10 Percent!

ATTOM, a leading curator of land, property, and real estate data, released its second-quarter 2023 U.S. Home Affordability Report, showing that median-priced single-family homes and condos are less affordable in the second quarter of 2023 compared to historical averages in 98% of counties around the nation with enough data to analyze (continuing a pattern dating back to early 2022).

The report shows that affordability has worsened across the nation this quarter amid a renewed jump in home prices that has pushed the typical portion of average wages nationwide required for major home-ownership expenses up to 33%.

After dropping or staying about the same for three straight quarters, the national median home price has increased to $350,000 in the second quarter of 2023 – a new record. The 10.2% gain, from $317,496 in the first quarter of 2023, represents the largest quarterly improvement since the second quarter of 2015. 

With home values still shooting up, the portion of average local wages consumed by major expenses on median-priced, single-family homes has grown in 94% of the 574 counties analyzed. Annually, this is up in 92% of these counties.

The recent price increases (which are due to a lack of inventory and high-interest rates) have helped push the typical cost of homeownership expenses up far faster than wages, resulting in declining home affordability.

In Q2 of 2023, major home-ownership expenses on typical homes are considered unaffordable to average local wage earners in 420 (or about three-quarters) of the 574 counties in the report, based on the 28% guideline. To put that simply, in almost 75% of these major counties, the average earner cannot afford to buy a home. 

The typical $1,949 cost of mortgage payments, homeowner insurance, mortgage insurance, and property taxes nationwide now consumes 33.4% of the average annual $70,031 wage. That is up from 29.9% in both the first quarter of 2023 and the second quarter of last year, to the highest level since 2007. To put that in perspective, most lenders need to see a DTI ratio of 36% or less to approve you for a conventional mortgage.

This report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly homeownership expenses — including mortgage payments, property taxes, and insurance — on a median-priced single-family home, assuming a 20% down payment and a 28% maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics. 

So, what are the major takeaways here?

1. Buyer activity currently still outweighs the extremely low inventory - which is the reason home prices are still rising. (Good news for sellers, bad news for buyers)

2. Homes are becoming less and less affordable, due to prices and interest rates, which puts buyer activity at risk of declining. (Good news for buyers, bad news for sellers)

   
   

Unfortunately, until something happens that can bring those measures closer together, conditions won't change. And at this point, that "something" might not happen until the next presidential election.

If you’re considering buying or selling in this market, one thing is certain - you'll need the right person on your side. It's crucial to have a local, trusted and experienced agent going up to bat for you!