Home affordability continues to slip away from many US consumers. Oxford Economics, an independent global economic advisory firm, reported in its November briefing that housing affordability “has dropped significantly over the last five years.” In 173 of America’s major metropolitan areas, a household now needs an average annual income of $107,700 to afford a new single-family home.
Home Affordability Continues to Slip Away
The home affordability crisis is more difficult than in past years. Today, only 36% of U.S. households earn enough to qualify to buy a new home – down from 59% in the third quarter of 2019, just before the pandemic. Back then, a combined household income of $56,800 could buy a single-family home.
In fact, the $108,000 figure doesn’t square at all with real median household income: $80,610 in 2023, U.S. Census Bureau figures show.
What is Happening?
The affordability crisis isn’t due to one or two factors but at least four: mortgage interest rates, housing prices, property taxes and insurance. Additional costs, such as new commuting patterns and furnishings, further complicate the picture.
While the report acknowledges that mortgage rates have moderated somewhat, volatility remains. This time last year, rates for a 30-year mortgage peaked at 7.76%, compared to the record low of 2.65% in January 2021. Although rates fell to around 6.08% in late September, they climbed again to 6.78% by mid-November.
Oxford Economics predicts that home affordability will see a short-term improvement in the last month of 2024 but that conditions will worsen again in the medium term.
The report highlights metro areas where new home prices have hit runaway levels, such as San Jose, San Francisco and San Diego. Realtor.com reports median prices at $1.3 million (up 8.3% year-over-year) in San Jose, $1.2 million (down -7.7%) in San Francisco, and $946,500 (down -3.3%) in San Diego.
Imagine playing a game of financial Whac-A-Mole. When one cost goes down, another rises. Even worse is that several frequently increase at the same time – and none seem to drop significantly.
What Should a Buyer Do Now?
I am a big believer in home ownership, which makes sense given that I have been a Realtor for over 35 years and I love helping people achieve that most elemental part of the American Dream – home ownership. However, as home affordability plummets, it is important to continue to work toward home ownership. Owning a home provides shelter, tax savings and the creation of generational wealth. It is a game changer for many families. What do you do when you can’t afford a single family home? I believe that if you can’t afford your dream home now, it is important to buy what you can afford. It’s the classic – if you can’t afford what you want, then you should want what you can afford. Waiting for that moment when you can afford your dream home is hard when the cost of that dream home outpaces wage growth more and more each year. A condo or townhome may not be your dream choice, but owning one of those will get you on the road to financial independence – and your dream home – much faster than if you stay on the sidelines bemoaning the changes in home affordability. If this sounds like what you have been feeling, let’s talk. While the DC market is expensive, there are homes out there that can start you on the path to financial success. We can find them together. Let’s talk.