Compared to historical averages, median-priced homes are less affordable in the first quarter of 2023 in 94% of counties across the country, according to new figures from Attom Data Solutions.
The analytics company’s Q1 2023 U.S. Home Affordability Report determined affordability by first calculating the amount of income needed to meet major monthly homeownership expenses, such as mortgage payments, property taxes and insurance, assuming a 20% downpayment and a 28% maximum debt-to-income (DTI) ratio. This income was then compared to local average weekly wage data from the U.S. Bureau of Labor Statistics, annualized to calculate a typical year’s earnings.
Median home prices in 537 of the 572 counties with enough first-quarter data to analyze are less affordable than they were in the past. That’s down from 565 counties (nearly 99%) in the previous quarter but up sharply from 356 counties (62%) that were historically less affordable in first-quarter 2022. Only 91 counties fell into this category in Q1 2021.
Major monthly homeownership expenses are unaffordable — or above the 28% DTI threshold — to average local wage earners in 373 of the 572 counties (65%) in Attom Data’s analysis. That includes average wage earners in several large population centers, such as the California counties of Los Angeles, San Diego and Orange; Maricopa County (Phoenix), Arizona; and Kings County (Brooklyn), New York.
But as unfavorable as the market currently is for potential homebuyers, conditions may be improving, according to Attom Data. Nationally, the portion of average wages required for typical major homeownership expenses has receded slightly. In Q1 2023, the typical cost of mortgage payments, homeowners insurance, mortgage insurance and property taxes was $1,758. That’s roughly 30% of the average annual wage of $70,460.
It’s a small decrease, considering the share of average wages required for such expenses was slightly more than 31% — the highest level in 15 years — as of fourth-quarter 2022. It’s also unaffordable by the widely used 28% DTI test. But Attom Data CEO Rob Barber welcomed any respite for house hunters.
“The soaring housing market has finally come back down in much of the U.S., at least for now, while worker pay is growing,” he said. “That’s produced some benefits for home seekers in the form of slightly better affordability, especially as lending rates have flattened out.
“Things certainly haven’t swung way back into friendly territory. Price drops and wage gains haven’t yet translated into equal improvements in affordability. And the trend could go back the other way if interest rates go up again, as expected. But the scenario is becoming more favorable for buyers.”
Wages are growing faster than home prices in 433 of the 572 counties (76%) analyzed in the report, which bodes well for affordability moving forward. That’s a big change from Q1 2022, when the rate of home price growth exceeded the rate of wage growth in 87% of counties.
