Homes Haven’t Been This Unaffordable Since 1989

The average monthly mortgage payment jumped 54% year over year in June while the median household income rose only 5.8%, according to the National Association of REALTORS®’ Housing Affordability Index. As home affordability weakened and the median home price shot to a record $413,800 in June, NAR’s index fell to its lowest reading in 33 years. “Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers,” NAR Chief Economist Lawrence Yun said recently.

Housing affordability “dramatically tumbled” in the second quarter amid rising mortgage rates and climbing home prices, NAR data shows. Monthly mortgage payments on a typical existing single-family home surged by nearly a third compared to the first quarter and by half compared to a year earlier. The 30-year fixed-rate mortgage has nearly doubled in that time. Although rates stabilized somewhat this month, they remain significantly higher than a year ago.

The average monthly mortgage payment rose to $1,944 in June from $1,265 a year earlier—a $679 difference, NAR notes. The annual mortgage payment as a percentage of income rose to 25.4%; most financial experts consider housing payments that exceed 25% of income to be unaffordable. “Monthly mortgage payments have soared compared to last year, and rising home prices are not helping affordability conditions,” Michael Hyman, a research data specialist at NAR, notes on the association’s Economists’ Outlook blog. “One good sign for the housing market is a welcome increase in the supply of inventory. Another is that rates recently have cooled, slowing the pace of growing monthly mortgage payments.”

Housing affordability posted double-digit declines in June compared to a year ago in all four major regions of the U.S. The Midwest was the most affordable region, with a median household income of $90,650 but a qualifying income of $68,496 needed to buy a median-priced home in the area.

On the other hand, the least affordable region continues to be the West, where the median family income was $98,498 but a qualifying income of $141,552 was needed to purchase a median-priced home. This marks the fourth consecutive month the Western region posted a reading on NAR’s affordability index below 100, which means a family earning the median income in the region can’t afford a median-priced home.