Housing affordability falls to record low in Q4 2022
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Housing affordability has fallen to a record low, the victim of 2022’s spike in mortgage rates and still-high home prices. Just 38.1 percent of homes sold during the fourth quarter of 2022 were affordable to families earning a typical income, down from 56.9 percent in the first quarter of the year, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index.
The decline in affordability comes after the coronavirus pandemic created a residential real estate boom, one characterized by record-high home values. As recently as the first quarter of 2020, the start of the pandemic, fully two-thirds of homes were in reach of typical buyers. But rising demand and inventory shortages drove prices up, and when mortgage rates started climbing in mid-2022, potential buyers began feeling a severe pinch. And they still are, even though the rise in home prices has slowed somewhat.
3 factors drive affordability
The home builders’ index looks at three variables: incomes, home prices and mortgage rates. The affordability study shows nationwide home prices remain high, although they’ve fallen from the records set earlier in 2022. The median price of all homes sold in the fourth quarter was $370,000, down from $380,000 in the third quarter and $390,000 in the second quarter.
In a trend that tightens the affordability squeeze, average mortgage rates rose to 6.8 percent in the fourth quarter of 2022, more than double the average rate of 3.16 percent in the fourth quarter of 2021.
Meanwhile, wages are rising fast — median income jumped to $90,000 in 2022 from $79,900 in 2021, according to the index, a 13 percent climb. However, home prices had been rising faster than paychecks.
The pandemic created another unintended consequence: Prices of building materials have soared.
“Rising mortgage rates, supply chain disruptions, elevated construction costs and a lack of skilled workers and lots all contributed to a declining housing market and worsening affordability conditions going back to the second quarter of last year,” National Association of Home Builders Chairwoman Alicia Huey said in a statement accompanying the Index’s release.
The 5 most affordable metros
Home prices and incomes vary widely around the country. Oases of affordability do still exist, mainly in the Rust Belt and Midwest. The top five most affordable places among metro areas with a population of 500,000 or more:
Indianapolis: This metro area has a median family income of $94,100 and a median home price of $231,000. As a result, 75.9 percent of homes were affordable for typical earners.
Rochester, New York: As a result of modest home prices, 74.6 percent of all new and existing homes sold in the fall months were affordable to families earning the upstate New York area’s median income of $91,500. The median home price was $184,000 in the fourth quarter of 2022, the builders’ index says.
Pittsburgh: The median sale price was $200,000, and 73.5 percent of all new and existing homes sold the fourth quarter were affordable to families earning the area’s median income of $95,400.
Toledo, Ohio: With a median family income of $77,800 and a median home price of $160,000, fully 73.4 percent of homes were in reach of median-income families.
Dayton, Ohio: This metro area has a median family income of $84,100 and a median home price of just $176,000. As a result, 71.5 percent of homes were affordable for typical earners.
The 5 least affordable metros
At the opposite end of the affordability spectrum, California dominates. The nation’s least-affordable markets are all in The Golden State:
Los Angeles-Long-Beach-Glendale: In a market with a median home price of $810,000, LA’s median income of just $91,100 doesn’t go far. As a result, only 2.2 percent of homes were affordable for typical families.
Anaheim-Santa Ana-Irvine: Orange County’s incomes are high: The typical family makes $119,100 this year. But home prices are higher, at a median of $942,000. That means just 3.8 percent of homes are in reach of average families.
San Diego-Carlsbad: San Diego has a median family income of $106,900 and a median home price of $765,000, translating to just 4.9 percent of homes falling in the typical buyer’s budget.
San Francisco-Redwood City-South San Francisco: Incomes are high here — the median is $165,600. Prices are even higher — the typical home went for $1.4 million. That translates to just 4.9 percent of homes sold during the winter months falling in the range of affordability for families earning the area’s median income.
San Jose, California: This area’s median family income is $168,500, highest in the nation, but the typical home sold for $1.3 million. That meant 7.3 percent of homes sold were affordable.
Housing affordability has been an ongoing challenge in California, even pre-dating the pandemic. Along with New York City and parts of the Pacifici Northwest, it has seen strong demand and little new building since the Great Recession.