Home prices are up again. Only not as much.

The national median price for an existing single-family home price stands at $398,500 — an 8.6 percent year-over-year increase, according to the National Association of Realtors’ (NAR) just-released Metropolitan Median Home Prices & Affordability Report for Q3 2022.

Sounds high, but that actually represents a slowdown, compared to the previous quarter’s 14.2 rise in home prices. In fact, home sales have been slowing all around the U.S. throughout 2022.

However, the cost of buying a home has actually increased a lot more, thanks to rampant inflation and increases in interest rates. The monthly mortgage payment on that median-priced home with a 20 percent down payment is $1,840, according to the NAR — a jump of $614 (or 50 percent) from one year ago.

If you wanted to buy a typical single-family home in 2021, you needed an annual income of just $58,826 to qualify, according to the NAR. Now, a year later, you need an income of $88,331 — “almost $40,000 more than it was prior to the start of the pandemic, back in 2019,” said NAR Chief Economist Lawrence Yun in a statement accompanying the report’s release. And that’s assuming you meet credit and other standards and can afford a nearly $80,000 down payment (20 percent of the median home price).

In short, the national median single family existing home price rose up 8.6 percent year-over-year in the third quarter while monthly home payments rose 50 percent. Sales are de-accelerating, and so is home-value appreciation. Yet homes are less affordable than ever.

To put it mildly, the housing market seems to be somewhat in flux.

Which housing markets are up and which are down?

Nationally, the price of a median single family home grew from $367,100 at the end of Q3 2021 to $398,500 at the end of Q3 2022. Nearly all (181 out of 185) of metropolitan areas tracked by the NAR saw home price gains. But the amount of the gains is shrinking. Double-digit price increases occurred in 46 of those areas in Q3 2022 — down drastically from 80 percent in Q2.

As always in real estate, it’s a question of location, location, location. Among the major U.S. regions, the South registered the largest share of single-family existing-home sales (44 percent) and the greatest year-over-year price appreciation (11.9 percent) in the third quarter. Prices increased 8.2 percent in the Northeast, 7.4 percent in the West, and 6.6 percent in the Midwest.

Out of the metro areas with the largest year-over-year price increases (all greater than 18 percent), seven out of the top 10 were in Florida. The highest price growth registered was 23.8 percent in the North Port-Sarasota-Bradenton metropolitan area.

Just four markets (out of 185) lost median value between Q3 2021 and Q3 2022. The largest value loss (down 4.5 percent) occurred in the Cumberland, Maryland-West Virginia market.

Half of the 10 most expensive markets in the U.S. were in California. Just one of those, San Francisco-Oakland, lost value (-3.7 percent) but still managed to rank second with a median home value of $1.3 million. The most expensive market was San Jose-Sunnyvale-Santa Clara, where the median home value is a cool $1.7 million.

The housing affordability crunch

High home prices coupled with increasing interest rates in Q3 2022 have made housing unaffordable for many people. (As of Nov. 16, 2022, the average rate for the benchmark 30-year fixed mortgage was 7.32 percent, up 15 basis points over the previous week.) A monthly mortgage payment of $1,840 on a typical home after a 20 percent down payment of $79,700 in the third quarter represents a 50 percent ($614) increase from a year ago. That’s $7,368 more in housing costs over a year.

According to the NAR report, families typically spend 25 percent of their income on mortgage payments, up from 17.2 percent one year ago. Spending more than 30 percent of your income on housing costs is considered “unaffordable.”

With monthly mortgage payments higher, it’s not surprising that people need more income to qualify for loans.  And the lower their down payment, the more income lenders want them to have. In terms of national averages:

Down payment Qualifying Income
Source: National Association of Realtors
20% $88,331
10% $99,372
5% $104,893

With limited inventory and interest rates hovering around 7 percent, first-time buyers are having an especially difficult time when it comes to affordability. According to the NAR report, a typical starter home valued at $338,700 with a 10 percent down payment comes with a monthly mortgage payment of $1,808, almost $600 per month more than a year ago ($1,210). This may be part of the reason first-time buyers only made up 26 percent of all home-buyers in 2022, down from 34 percent in 2021.

Should you wait to buy a house?

Despite modest “slowing” signals in the Consumer Price Index (which rose 0.4 percent in September and October), Fannie Mae’s October 2022 Home Purchase Sentiment Index reveals that just 16 percent of respondents feel now is a good time to buy, down from 19 percent in September. Only 37 percent think prices will decrease.

Still, “I don’t know that inflation by itself is the key determinant for home buyers and sellers,” notes Greg McBride, Bankrate’s chief financial analyst. “There is a lot of economic uncertainty and affordability is quite strained. If we see continued moderation in inflation, I’m not sure that changes the calculus for buyers very much if we’re then in an environment of rising unemployment and broad economic weakness.”

Whether you’re a first time buyer or a homeowner trying to decide whether to sell now and buy later when prices have cooled down, consider this: Home prices rarely decrease rapidly. In other words, if you try to time the market, you may be waiting for a long time.

Bear in mind that if you buy now you can begin to build equity immediately and avoid future interest rate hikes. If you have good credit, enough saved for a down payment, and plan to stay in the house for several years, you might want to start house-hunting, regardless of the real estate market. If your situation is weak in any of those areas, it might be better to wait.

Buying amid an affordability crunch

Clearly affordability is a major issue, but if you have determined that now is the best time to buy, there are tactics to mitigate some of the challenges.

  • Get preapproved for a mortgage so you know your borrowing limit ahead of time. Keep in mind that the amount you are preapproved for may not be the amount you can realistically afford.
  • Consider the season. Winter, residential real estate’s traditional “slow season,” offers the best buying opportunities. You’ll face less competition and more motivated sellers, which often leads to lower purchase prices.
  • Buy an “as-is” home or fixer-upper with a discounted price tag and put in some sweat equity to get it in dream-house condition. Of course, don’t bite off more than you can chew and be careful the “fixer-upper” doesn’t turn into a “total rebuild.”
  • Move to a less-expensive neighborhood. Real estate markets are highly local in their pricing. You might get more bang for the housing buck in certain quarters, especially if they’re up-and-coming or more remote from the city center.
  • Opt for an adjustable rate mortgage (ARM) Instead of the usual 30-year fixed rate mortgage. It’ll have a lower interest rate and of course will vary with the market. The obvious caveat here is to make sure you can afford future interest rate hikes, including the big one when the mortgage resets.
  • Look for a loan with a lower down payment. Both VA (if you qualify) and FHA loans require less than the standard 20 percent down. VA loans require no down payment and FHA loans can be had for as little as 3.5 percent down.
  • Research down payment assistance programs. (DPAs). DPAs are typically meant for first-time buyers, although you may qualify as a first-timer if you haven’t owned a home in the past three years.

Overall, “the 30-year fixed rate mortgage is your best gauge of affordability,” says McBride. “Don’t lean on creative financing to get into the home under the premise that you’ll refinance later. There is no guarantee of lower rates or having enough equity at the time you need to refinance down the road. If you can afford the payments on a 30-year fixed rate mortgage, even if your income doesn’t rise further, that provides comfort that you’re not biting off more than you can chew.”