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Will Americans ever be able to afford to buy a home again?


Nurphoto | Nurphoto | Getty Images

As mortgage rates reached a 23-year high last week, the cry went off across markets and social media: Is housing affordability dead? Has a version of the American dream — home ownership, kids, backyard barbecues — died with it?

The question is sharp because housing affordability has dropped by nearly half since the ultra-low interest rate days of 2021, according to the National Association of Realtors.

The median family was already $9,000 short in August of the income needed to buy the median existing home, the association says, and the recent surge in rates since has moved another five million U.S. families below the qualification standard for a $400,000 loan, according to John Burns Real Estate Consulting. At 3% mortgage rates, 50 million households could get a loan that size. Now it’s 22 million.

While an easing in treasury bond yields this week has brought the 30-year fixed mortgage back a shade below 8%, there is no quick fix.

The qualifying yearly income for a median-priced house in 2020 was $49,680. Now it’s more than $107,000, according to the NAR. Redfin puts the figure at $114,627.

“[These are] stunning numbers that render house affordability even more challenging for too many American families, especially those looking to buy their first home,” bond-market maven Mohamed El-Erian, an advisor to Allianz among many other roles, posted on X.

“It’s a very worrisome development for America,” NAR chief economist Lawrence Yun said.

Affordability depends on three big numbers, according to Yun — family income, the price of the house, and the mortgage rate. With incomes rising since 2019, the bigger issue is interest rates. When they were low, they papered over a surge in housing prices that began in late 2020, helped by people relocating to areas like Florida, Austin, Texas, and Boise, Idaho, to work in their old cities from their new homes. Now, the surge in rates is crushing affordability even as incomes rise sharply and housing prices mostly hang on to the big gains they generated during Covid.

“At the current 8% mortgage rate, mortgage payment[s] are 38% of median income,” Moody’s Analytics chief economist Mark Zandi said. “The mortgage rate has to fall to 5.5%, or the median priced home has to fall by 22%, or the median income has to increase by 28%, or some combination of all three variables.” 

At the same time, demand for adjustable-rate mortgages has spiked to its highest level in a year amid the broader slowdown in mortgage applications.

What needs to change to make housing affordable again

All three indicators face a tough road back to “normal,” and normal is a long way from here. A few numbers illustrate why.

The National Association of Realtors measures affordability through its 34-year old Housing Affordability Index, or HAI. It calculates how much income the median family has to have to afford the median existing home, which, right now, costs about $413,000, according to NAR. If the index equals…



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