The latest Home Affordability Report [1] covering the fourth quarter of 2022 published by ATTOM Data [2] found that the average, median-priced single-family home or condos are less affordable compared to historical averages in 99% of counties across the nation, bounds above the 68% of counties that were less affordable than a year ago.
Further, the portion of average wages nationwide required for typical home-ownership (traditionally 30%) has risen to 32.3% during the fourth quarter. That figure is considered “unaffordable” by traditional lending standards; it is up from 29.6% during the third quarter of 2022 and 23.8% from a year ago. This number is now at its highest point since before the Great Recession.
Why is this happening? According to ATTOM, affordability has worsened due to rising home-mortgage rates in the U.S., which offset the benefits of rising wages and a recent decline in home values. The higher rates the market experienced in 2022 have pushed up major ownership expenses on the average home by 10% during the fourth quarter, even as the price of the average home dipped by 3% in the third quarter and 4% during the summer.
"Prospective homebuyers—especially first-time buyers—can't seem to catch a break," said Rick Sharga [3], EVP of Market Intelligence at ATTOM. "For the past two years home prices have appreciated in double digits—15 to 20% a year in some markets. Now that home prices have plateaued and even declined in some markets, buyers are faced with mortgage rates that have doubled, making home purchases even less affordable."
Compared to historical levels, median home prices in 577 of the 581 counties analyzed in the fourth quarter of 2022 are less affordable than in the past. Numbers are up slightly from 572 of the same group of counties in the third quarter of 2022. But it is well up from 393 in the fourth quarter of 2021 and just 181, or less than a third, two years ago.
Meanwhile, major home-ownership expenses on typical homes are unaffordable to average local wage earners during the fourth quarter of 2022 in 427 of the 581 counties in the report. Counties with the largest populations that are unaffordable in the fourth quarter are Los Angeles County, California; Maricopa County, Arizona; San Diego County, California; Orange County, California; and Kings County, New York.
"There is a scenario where affordability improves as we move through 2023," Sharga added. "Wage growth continues to be strong; home prices appear to have stabilized and are even going down slightly; and mortgage rates may have peaked for this cycle, and could go down gradually next year. If those conditions remain in place, the affordability picture is much brighter for a lot of potential buyers."
Click here [1] to view the report in its entirety.