Q2 Affordability Worsens Nationwide as Home Prices Elevate

ATTOM has released its Q2 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 percent.

The latest portion is considered unaffordable by common lending standards, which call for a 28 percent debt-to-income ratio. It also marks the highest level since 2007 and remains well above the 25 percent figure from early in 2022, when a spike in home-mortgage rates had just begun to raise ownership costs.

The worsening picture facing home buyers reflects the second shift in the U.S. housing market in the past year, coming as the median single-family home price has shot up to a new record following three quarters of declines. Those declines strongly suggested an end to a decade-long boom period lasting from 2012 into the middle of 2022.

Nationwide, the median single-family home value has risen 10 percent from the first to the second quarter of 2023, to $350,000 – one of the biggest quarterly increases in the past decade. The second-quarter median sits 2 percent above the previous peak hit a year earlier before the market stalled and prices dropped.

This Spring's price increases have helped to push the typical cost of major ownership expenses up far faster than wages, resulting in declining home affordability.

"The U.S. housing market has done an about-face following a downturn that threatened to usher in an extended period of flat or falling prices. With that has come another blow to how much house the average worker around the country can afford," said Rob Barber, CEO for ATTOM. "Whether this is just a temporary blip amid this year's peak buying season or a sign of another extended price surge is anyone's guess. But any predictions of a market demise were certainly premature – and house hunters are feeling the pinch."

The ongoing drop-off in affordability comes as multiple forces create an uncertain scenario that could push the U.S. housing market in decidedly different directions.

Home values have jumped at a time when mortgage rates have settled down below 7 percent after more than doubling last year, and the U.S. consumer-price inflation rate has dropped by more than half, to around 4 percent. The stock market has also shown gains recently. All that has put more buying power into the pockets of house hunters, pushing prices up and affordability down.

But that could easily change if a recent uptick in mortgage rates continue, the stock market cools down again or the economy falls into a recession, as some economists predict. The third quarter of 2023 will be a key barometer, given that the long market boom came to a halt during the same period last year.

This report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly home ownership expenses — including mortgage payments, property taxes and insurance — on a median-priced single-family home, assuming a 20 percent down payment and a 28 percent 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 (see full methodology below).

Compared to historical levels, median home prices in 565 of the 574 counties analyzed in the second quarter of 2023 are less affordable than in the past. That is up from 550 of the same group of counties in the first quarter of 2023 and from 553 in the second quarter of 2022. It is more than double the number that was less affordable historically, two years ago before average home mortgages rates began to go up.

Meanwhile, major home-ownership expenses on typical homes are considered unaffordable to average local wage earners during the second quarter of 2023 in 420, or about three-quarters, of the 574 counties in the report, based on the 28 percent guideline. Counties with the largest populations that are unaffordable in the second quarter are Los Angeles County, CA; Maricopa County (Phoenix), AZ; San Diego County, CA; Orange County, CA (outside Los Angeles) and Kings County (Brooklyn), NY.

The most populous of the 154 counties where major expenses on median-priced homes remain affordable for average local workers in Q2 of 2023 are Cook County (Chicago), IL; Harris County (Houston), TX; Wayne County (Detroit), MI; Philadelphia County, PA, and Cuyahoga County (Cleveland), OH.

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