Key Takeaways
- Home affordability is at its worst point since 2007, according to a measure from housing data provider ATTOM.
- Major homeownership expenses require one-third of the average wage nationwide, a 16-year high.
- Since 2007, the expense-to-wage ratio has remained above the 28% level preferred by mortgage lenders.
Single-family homes and condos in 99% of counties with sufficient data to analyze remain less affordable than historical averages.
That’s according to ATTOM’s fourth-quarter 2023 Home Affordability Report. Since 2021, home ownership has demanded historically large portions of wages across the country. The trend maintained a 16-year high hit last quarter as expenses require one-third of the nationwide average wage.
A median-priced home consumes 33.7% of the average national wage in the fourth quarter, which is unaffordable by most lenders’ standards. According to Freddie Mac, a buyer’s housing expenses should be less than 28%.
Costs to Own a Home Significantly Worse Than in 2021
Major ownership expenses and wages didn’t change much from those in the third quarter, despite sitting at a historically high level.
“The good news is that home affordability has stopped getting tougher around the U.S., at least for the moment. The bad news is that owning a home remains more of a financial stretch than it’s been for many years,” said Rob Barber, CEO of ATTOM, in a prepared statement.
A typical mortgage payment, property taxes, and insurance are taking up three percentage points more of the average wage than a year ago and 12 points more than early in 2021, just before home mortgage rates started rising.
Wages Aren’t Keeping Up
The report found that although home values have settled down, annual price changes have outpaced weekly wage growth in 294, or 50.7%, of the 580 counties examined.
About 54% of the 580 counties analyzed saw their major expenses on median-priced, single-family homes increase from the third to the fourth quarter of 2023. In about 88% of those markets, they remain up annually.
The median home price in the United States is $335,000 in the fourth quarter of 2023, which requires a wage of $86,404 per year to be affordable. This assumes a $67,000 down payment and a $268,000 loan, to allow wage earners not to spend more than 28% of their pay on mortgages, property taxes, and insurance.
But, approximately 33% of the average annual national wage of $71,708 is consumed by mortgage payments, homeowner insurance, and mortgage insurance. Both expenses and average wages have risen less than 1% between the third and fourth quarters of 2023. Despite this, the latest percentage is up from 30.9% in the fourth quarter of last year and is far above the recent low point of 21.4% in the first quarter of 2021.
“Even though there are signs of better times for buyers this quarter, the high expense-to-wage ratio is still a stretch in most of the country for average workers who don’t have a lot of other financial resources like significant savings or investments. Lenders will often push the 28% rule, especially if buyers have lots of financial resources outside of wages; we now are seeing fully three-quarters of markets around the country pushing the basic lending benchmark,” Barber said.
