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Rising Home Prices, Mortgage Rates Fuel Decline in Housing Affordability

ATTOM has released its Q3 2023 U.S. Home Affordability Report showing that median-priced single-family homes and condos are less affordable compared to historical averages in 99% of counties around the nation.

The report shows the latest trend continues a two-year pattern of home ownership getting more and more difficult for average U.S. wage earners.

While affordability has worsened across the nation amid a third-quarter increase in home prices and home mortgage rates, they have combined to help push the typical portion of average wages nationwide required for major homeownership expenses up to 35%.

The latest number is considered unaffordable by common lending standards, which call for a 28% debt-to-income ratio, marking the highest level since 2007 and stands well above the 21% figure from early in 2021—right before home-mortgage rates began shooting up from historic lows.

Home ownership keeps getting tougher for buyers as average 30-year home-mortgage rates in the U.S. have risen above 7%, from under 3% in 2021, and home prices have increased again in Q3 of this year. The nationwide median price of single-family homes and condos is up 2% from Q2, to a new record of $351,250. Typical values around the country have gone up for two straight quarters, from a fallback that lasted from the middle of 2022 into early 2023 and threatened to end the extended boom that has buoyed the U.S. housing market for 11 years running.

Those latest price and interest rate hikes, along with other forces, continue to push the typical cost of major ownership expenses up far faster than wages, resulting in declining home affordability.

"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," said Rob Barber, CEO for ATTOM. "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."

Despite the ongoing path of affordability going against homebuyers, the forces creating that scenario remain in flux, which could push the trend up or down in the coming months.

Counties with the largest populations that are unaffordable in Q3 are:

  1. Los Angeles County
  2. Cook County, IL
  3. Maricopa County, AZ
  4. San Diego County, CA
  5. Orange County, CA

The most populous of the 121 counties where major expenses on median-priced homes are still affordable for average local workers in Q3 of 2023 are

  1. Harris County, TX
  2. Wayne County, MI
  3. Philadelphia County, PA
  4. Cuyahoga County, OH
  5. Allegheny County, PA

Home prices increase nationwide once again, up in two-thirds of local markets

After dropping or staying about the same from mid-2022 to early-2023, the national median home price has increased for the second quarter in a row, to $351,250 in Q3 of 2023. The latest price is up 2.1% from $344,000 in Q2 of 2023 and 6.5% from $329,813 in Q3 of last year.

Among the 47 counties in the report with a population of at least 1 million, the biggest year-over-year increases in median prices during Q3 of 2023 are:

  1. Fulton County, GA (+23%)
  2. St. Louis County, MO (+14%)
  3. Miami-Dade County, FL (+11%)
  4. Orange County, CA (+10%)
  5. Palm Beach County, FL (+10%)

Counties with a population of at least 1 million where median prices remain down the most from Q3 of 2022 to the same period this year are:

  1. Travis County, TX (-2%)
  2. Honolulu County, HI (-4%)
  3. Maricopa County, AZ (-3%)
  4. Clark County, NV (-3%)
  5. Sacramento County, CA (-2%)

Prices now growing faster than wages in almost half the U.S.

Amid the continued rebound in the U.S. housing market, annual price appreciation has outpaced weekly annualized wage changes from Q3 of last year to Q3 of this year in 272 of the 578 counties analyzed in the report (47%). That marked a significant change from Q2 of 2023 when wages were growing faster annually than prices, or shrinking less, in three-quarters of the same counties.

With home values rising again, the portion of average local wages consumed by major expenses on median-priced, single-family homes has grown from Q3 of 2022 to Q3 of 2023 in 99% of the 578 counties analyzed, up quarterly in 94% of them.

The typical $2,053 cost of mortgage payments, homeowner insurance, mortgage insurance and property taxes nationwide exceeds $2,000 for the first time ever. It now consumes 34.6% of the average annual national wage of $71,214. That is up from 32.3% in Q2 of 2023 and 28.4% the third quarter of last year, to the highest level since 2007.

"This pattern really jumps out," Barber said. "While 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."

Counties with the largest annual increase in the portion of average local wages needed for major ownership expenses include:

  1. Santa Cruz County. CA (up from 101.9% in Q3 of 2022 to 122.7% in Q3 of 2023)
  2. Orange County, CA (up from 73.8% to 94.6%)
  3. Monterey County, CA (up from 84.4% to 105.3%)
  4. Beaufort County, SC (up from 52% to 68%)
  5. Santa Barbara County, CA (up from 69.6% to 84.9%)

Annual wages of more than $75,000 needed to afford typical home in more than half of counties analyzed

While homeownership continues to require largest chunk of wages along northeast and west coasts, annual wages of more than $75,000 are needed to pay for major costs on the median-priced home purchased during Q3 of 2023 in 330 (57%) of the 578 markets in the report.

All but one of the top 25 highest annual wages required to afford typical homes are on the east or west coasts, led by New York County (Manhattan), NY ($407,125)Santa Clara County (San Jose), CA ($357,889)San Mateo County (outside San Francisco), CA ($356,519)Marin County (outside San Francisco), CA ($325,323), and San Francisco County, CA ($319,673).

The lowest annual wages required to afford a median-priced home in the third quarter of 2023 are in Schuylkill County, PA (outside Allentown($27,026)Fayette County, PA (south of Pittsburgh($30,694)Chautauqua County (Jamestown), NY ($32,812); Caddo Parish (Shreveport), LA ($33,106) and Macon County (Decatur), IL ($33,951).

Historical home affordability drops again, remaining at worst point in 16 years

Among the 578 counties analyzed, 574 (99%) are less affordable in Q3 of 2023 than their historic affordability averages. That is higher than the 96% level of a year ago and well above 48% in Q3 of 2021. Historical indexes have worsened quarterly in 94% of those counties, pushing the nationwide index to its lowest point since 2007.

Among the 578 counties in the report, only 1% are more affordable than their historic averages in Q3 of 2023. That is less than 4% a year ago and far below the 52% level in Q3 of 2021.

"We will see how this shakes out as the peak 2023 buying season winds down," said Barber.

To read the full report, including more data, charts, and methodology, click here.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport magazines with more than eight years of writing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is an avid jazz lover and likes to read. She can be reached at [email protected].

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