Home affordability improved slightly in the US late last year, but this housing market is still one of the unfriendliest for buyers in the past four decades.
Modest yet meaningful declines in home prices and mortgage rates gave aspiring homeowners some much-needed relief in the fourth quarter, according to recently released data from the National Association of Realtors (NAR).
The median price for US single-family homes was about $391,700 in the final quarter of 2023, the NAR announced in a February 8 report. That figure is below the going rate of $406,867 from July through September but was still up 3.5% from the year before.
Another small win for buyers is that the 30-year fixed mortgage rate is down from a peak of 7.8% in late October to 6.6%, which is roughly where it was in late 2022. However, that rate is still well above the 3% to 5% range it was in for the mid-2010s and early 2020s.
Affordability remains historically awful
Although lower home prices and borrowing costs are welcome news for hopeful buyers, the drops so far certainly aren’t worth doing backflips over.
The third quarter of 2023 was the worst three-month stretch for home affordability in 38 years, according to data from the NAR’s housing affordability index. So while last quarter was a bit better for buyers, it was still the second-worst market since 1985.
A typical monthly mortgage payment on an existing single-family home with 20% down upfront was $2,163, according to the NAR’s fourth-quarter report. That was 1.2% lower than in the third quarter but a 10% increase from late 2022 — a difference of nearly $200 per month.
“Many homebuyers have been shocked at high housing costs, with a typical monthly mortgage payment rising from $1,000 three years ago to more than $2,000 last year,” said Lawrence Yun, the chief economist at the NAR, in a statement released with the report.
Yun continued: “This doubling in housing costs for recent home buyers is not included in the official consumer price index inflation calculations and contributes to the sense of dissatisfaction about the economy.”
Homeowners are spending just over a quarter of their take-home pay on their mortgage, which is in line with the rate from the prior quarter and the previous year. That’s a sizable chunk of income, but it pales in comparison to the 39.4% that first-time buyers are spending.
In nearly half of US markets, families bringing in less than $100,000 couldn’t afford to buy a standard home on a 10% down payment last quarter, according to the NAR.
However, there are a few silver linings in this grim market. Home inventory is expected to rise this year, and interest rates are projected to fall at least a few times, which would bring down mortgage rates. More supply, in particular, would put more downward pressure on home prices.
“Increased homebuilding, along with lower mortgage rates, will not only improve housing affordability but also help bring more homes onto the market in 2024,” Yun said in a statement.
32 cities where home prices are falling
Property value gains were widespread and significant in the fourth quarter. Single-family home prices climbed across all four regions of the country, led by a 7.3% jump in the Northeast. The NAR also noted that prices rose in 86% of the 221 markets it tracks, up from an 82% rate in the third quarter.
In fact, home values were more likely to rise by double digits — as was the case in 34 cities — than fall outright. Only 32 markets had houses that were cheaper in aggregate than in late 2022.
Below are those 32 US cities where single-family homes got cheaper in the fourth quarter compared to the prior year, according to the NAR. Along with each market is its year-over-year home-price change and the median home price in the third and fourth quarters of 2023, as well as the fourth quarter of 2022.
Correction on February 12, 2024: The slides below were updated to reflect that the final number in each is the median home price from Q4 2022, not Q4 2023 as was stated previously.
