Home Affordability Worsens Across U.S. During Q4 2022
Major Home-Ownership Costs Consume 32% of Average National Wage
By ATTOM Staff
ATTOM, a leading curator of real estate data nationwide for land and property data, released its fourth-quarter 2022 U.S. Home Affordability Report showing that median-priced single-family homes and condos are less affordable in the fourth quarter of 2022 compared to historical averages in 99% of counties across the nation with enough data to analyze — far above the 68% of counties that were less affordable in the fourth quarter of 2021.
The report further shows that the portion of average wages nationwide required for typical major home-ownership expenses has risen to 32.3% this quarter. That figure — considered unaffordable by traditional lending standards — is up from 29.6% in the third quarter of this year and from 23.8% a year ago. It now stands at its highest point since 2007.
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. Higher loan rates in 2022 have pushed up major ownership expenses on median-priced homes by 10% this quarter even as the median price of single-family homes and condos nationwide dipped 3% this quarter, following a 4% drop over the Summer. But lower prices and a 1% gain in average wages have been too little to make up for the impact of these increased mortgage payments.
“Prospective homebuyers — especially first-time buyers — can’t seem to catch a break,” said Rick Sharga, executive vice president 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.”
The report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly home ownership expenses — including mortgage, property taxes and insurance — on a median-priced single-family home, assuming a 20% down payment and a 28% 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.
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. The latest number is 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, or about three-quarters, of the 581 counties in the report, based on the 28% lending guideline. Counties with the largest populations that are unaffordable in the fourth quarter are:
» Los Angeles County, CA
» Maricopa County (Phoenix), AZ
» San Diego County, CA
» Orange County, CA (outside Los Angeles)
» Kings County (Brooklyn), NY
The most populous of the 181 counties where major expenses on median-priced homes remain affordable for average local workers in the fourth quarter of 2022 are:
» Cook County (Chicago), IL
» Harris County (Houston), TX
» Wayne County (Detroit), MI
» Philadelphia County, PA
» Cuyahoga County (Cleveland), OH
Interest rates have more than doubled this year to almost 7%, inflation remains near 40-year highs and the stock market has declined. All those forces have helped drive down prices after a decade of gains. At this point, prices haven’t declined enough to make up for rising mortgage costs. But affordability could shift back in favor of home seekers if mortgage rate hikes ease or if prices drop further.
“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.”
Home prices remain up at least 5% annually in two-thirds of U.S.
Despite the recent decline in the U.S. housing market, median single-family home and condo prices in the fourth quarter of 2022 remain up by at least 5% over the fourth quarter of 2021 in 361, or 63%, of the 581 counties included in the report. However, typical values have dropped from the third to the fourth quarter in 463, or 80%, of those counties. That has contributed to a nationwide 3% decrease in the median home price, from $335,000 in the third quarter of 2022 to $325,000 in the fourth quarter. The median is now down 6.9% from the peak of $349,000 in the second quarter of this year.
Among the 48 counties in the report with a population of at least 1 million, the biggest year-over-year gains in median sales prices during the fourth quarter of 2022 are in:
» Collin County (Plano), TX (up 34%)
» Hillsborough County (Tampa), FL (up 18%)
» Miami-Dade County, FL (up 17%)
» St. Louis County, MO (up 16%)
» Palm Beach County (West Palm Beach), FL (up 16%)
Counties with a population of at least 1 million where median prices have dropped most, year-over-year, during the fourth quarter of 2022 are:
» Philadelphia County, PA (down 13%)
» New York County (Manhattan), NY (down 4%)
» Honolulu County, HI (down 4%)
» Bronx County, NY (down 1%)
» Santa Clara County (San Jose), CA (down 1%).
Portion of wages needed for home ownership increases throughout the U.S.
With mortgage rates rising close to 7%, the portion of average local wages consumed by major expenses on median-priced, single-family homes and condos has increased from the third to the fourth quarter of 2022 in 97% of the 581 counties analyzed, helping to drive up the expense-to-wage ratio nationwide. The amount needed now tops the 28% lending guideline in 427, or about three-quarters of those counties, assuming a 20% down payment. That is up from 388, or two-thirds, of the same group of counties in the third quarter of 2022, and from 246, or less than half, in the fourth quarter of last year.
Counties with the largest quarterly increase in the portion of average local wages needed for major ownership expenses are
» Santa Cruz County, CA (up from 105.3% in the third quarter of 2022 to 124.7% in the fourth quarter of 2022)
» Maui County, HI (up from 89.5% to 104.3%)
» Beaufort County (Hilton Head), SC (up from 54.2% to 68 9%)
» Gallatin County (Bozeman), MT (up from 54.5% to 67.3%)
» Alexandria City County, VA (outside Washington, DC) (up from 42.8% to 55.2%).
Counties where the smallest portion of average local wages are required to afford the median-priced home during the fourth quarter of this year are:
» Macon County (Decatur), IL (12% of annualized weekly wages needed to buy a home)
» Schuylkill County, PA (outside Allentown) (12.8%)
» Peoria County, IL (13.5%)
» St. Lawrence County, NY (north of Syracuse) (13.6%)
» Cambria County, PA (east of Pittsburgh (14.1%)
