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At the national level, housing affordability rose in December compared to the previous month, according to NAR’s Housing Affordability Index. Compared to the prior month, the monthly mortgage payment decreased by 6.0% while the median family income increased by 0.9%, making home buying slightly more affordable in December. The monthly mortgage payment increased by $120 from last month.
Compared to one year ago, affordability fell in December as the monthly mortgage payment climbed 49.1% and median family income rose by 6.2%. The effective 30-year fixed mortgage rate1 was 6.44% this December compared to 3.15% one year ago, and the median existing-home sales price rose 2.0% from one year ago. Mortgage rates have declined for three consecutive months.
In December, the median family income was ($90,984), and potential home buyers made ($1,080) more than the qualifying income ($89,904).
As of December 2022, the national index was back above 100, which means that the typical family can now afford to buy a median-priced home. An index below 100 means that a family with a median income had less than the income required to afford a median-priced home. The income required to afford a mortgage, or the qualifying income, is the income needed so that mortgage payments on a 30-year fixed mortgage loan with a 20% down payment account for 25% of family income.
The most affordable region was the Midwest, with an index value of 139.9 (median family income of $89,460 with a qualifying income of $63,936). The least affordable region remained the West, where the index was 72.3 (median family income of $99,132 and a qualifying income of $137,184). The Northeast was the second most affordable region with an index of 107.5 (median family income of $103,206 and a qualifying income of $96,048). The South was the second most unaffordable region with an index of 100.1 (median family income of $83,397 with a qualifying income of $83,280).
A mortgage is affordable if the mortgage payment (principal and interest) amounts to 25% or less of the family’s income.2
Housing affordability3 had double digit declines from a year ago in all four regions. The Midwest and South both shared the biggest decline of 29.5%. The Northeast experienced a weakening in price growth of 28.3% followed by the West which fell 26.7%.
Affordability was up in all regions from last month. The Northeast region rose 10.9% followed by the West with an increase of 8.7%. The Midwest increased 7.8% followed by the South region, which had the smallest gain of 6.5%.
Nationally, mortgage rates were up 329 basis point from one year ago (one percentage point equals 100 basis points) from 3.15 to 6.44%.
Compared to one year ago, the monthly mortgage payment rose to $1,873 from $1,256, an increase of 49.1%. From a year ago, the monthly mortgage payment increased $617. The annual mortgage payment as a percentage of income increased to 24.7% this December from 17.6% from a year ago. Regionally, the West has the highest mortgage payment to income share at 34.6% of income. The South had the second highest share at 25.0% followed by the Northeast with their share at 23.3%. The Midwest had the lowest mortgage payment as a percentage of income at 17.9%. Mortgage payments are not burdensome if they are no more than 25% of income.4
This week the Mortgage Bankers Association released data showing that mortgage applications increased 7.4 percent from one week earlier. Mortgage rates are trending downwards as well as median home prices. Both factors help affordability conditions by bringing down monthly payments. Median home prices in 2022 hit an all-time high and have started to come down to the benefit of potential home buyers who have been outpriced by the market for the last few years.
The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation.
1 Starting in May 2019, FHFA discontinued the release of several mortgage rates and only published an adjustable rate mortgage called PMMS+ based on Freddie Mac Primary Mortgage Market Survey. With these changes, NAR discontinued the release of the HAI Composite Index (based on a 30-year fixed rate and ARM) and, starting in May 2019, only releases the HAI based on a 30-year mortgage. NAR calculates the 30-year effective fixed rate based on Freddie Mac's 30-year fixed mortgage contract rate, 30-year fixed mortgage points and fees, and a median loan value based on the NAR median price and a 20 percent down payment.
2 Housing costs are burdensome if they take up more than 30% of income. The 25% share of mortgage payment to income takes into account that homeowners have additional expenses such as mortgage insurance, home insurance, taxes, and expenses for property maintenance.
3 A Home Affordability Index (HAI) value of 100 means that a family with a median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20 percent more than the level of income needed pay the mortgage on a median-priced home, assuming a 20 percent down payment so that the monthly payment and interest will not exceed 25 percent of this level of income (qualifying income).
4 Total housing costs that include mortgage payment, property taxes, maintenance, insurance, and utilities are not considered burdensome if they account for no more than 30% of income.
