Housing affordability fell to a 3-decade low, but it’s not all bad

Housing affordability in the US has fallen to its lowest level since 1989 as both mortgage rates and house prices have risen while income growth has crawled at a much slower pace.

According to data from the Federal Reserve Bank of St. Louis, median home prices surpassed $400,000 for the first time, landing at $440,300 in the second quarter of 2022.

Meanwhile, 30-year fixed-rate mortgage rates were 5.60% in June, down from 3.03% a year ago. This rise is partly due to the US Federal Reserve’s decision to raise interest rates — which has happened four times so far this year — to combat rising inflation.

The National Association of Realtors (NAR) defines qualifying income, or the income necessary to pay for a mortgage, as one that allows a homeowner to spend no more than 25% of the family income for the monthly payment of a 30- year fixed-rate mortgage loan, including a 20% down payment.

Today, the association says that a qualifying annual income in the US is $93,312. While the monthly mortgage payment rose 53.7% last year, the median family income rose just 5.8%, it said.

“Rapidly rising house prices and high mortgage rates pushed housing affordability to its worst level in over 30 years in June,” said Lawrence Yun, chief economist for the National Association of Realtors, in a statement on home price growth to give income time to to catch up.”

States in the western US are now significantly less affordable than the rest of the country. There, qualifying income has reached $141,552 according to the NAR. This compares to a median family income of $98,498 for the region.

Data suggests that the Midwest is the cheapest place to buy a home. According to NAR, the median family income there as of June is $90,650, while the qualifying income, which determines whether a family can afford a mortgage, is $68,496.

The home buying market has slowed significantly in recent weeks as barriers to entry for new buyers have become tougher, the Mortgage Bankers Association said on Wednesday.

“Despite the strong labor market, the purchase market continues to slow down,” said the strength of the economy.

Yun added that the worst of the affordability crisis may already be over.

“Mortgage rates have fallen in recent weeks on the back of falling gasoline prices and a modest slowdown in consumer price inflation,” he said. “Even so, housing affordability will be an ongoing challenge until more supply comes to market.”

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