New Home Affordability Crisis Enters 28th Month

As of July 2024, the median new home sold in the United States has been above the threshold of affordability for a family earning the median household income for 28 consecutive months. The last month in which the typical new home sold in the U.S. was within the affordable reach of the typical household was March 2022.

That’s despite the average interest rate for a 30-year conventional fixed rate mortgage dropping to 6.85% in July 2024. Unfortunately, that decline in mortgage rates was accompanied by an increase in the median sale price of a new home, which rose to an initial estimate of $429,800. The combination of these two factors means that the monthly mortgage payment for a median new home would consume 43.2% of the income earned by a household at the middle of the U.S. distribution of income in July 2024.

That’s still well above 36% of household income level that represents the upper threshold that most mortgage lenders use to determine whether they will lend to a household that has no other debt. If a household does have other debts, lenders prefer the cost of a monthly mortgage payment consumes no more than 28% of the household’s income.

The latest update of our chart tracks the changing relative affordability of the typical new home sold in the U.S. is for the typical American household with respect to these mortgage lender thresholds from January 2000 through July 2024.

That’s just for new homes. Statista uses a different measure of the relative affordability of all homes sold in the U.S. over the months from 2018 through the present and arrives at a similar conclusion: the typical home sold in the U.S. has been well out of the affordable reach of the majority of American households since early 2022:

You will find more infographics at Statista

They’re referencing projections of annual median household income for 2023 and 2024 that are elevated by $3-$5,000 above what we’re seeing from monthly estimates of that data. The U.S. Census Bureau will release its estimate of the nation’s median household income for 2023 later today.

Looking forward to when we get housing and income data for August 2024, the good news is that mortgage rates continued fall in August 2024, averaging 6.5% during the month. Unfortunately, if those rates applied to July 2024′s median new home sale price, they would still be unaffordable for the median income-earning household. The monthly mortgage for the typical new house would cost 41.6% of its income at that lower mortgage rate. We won’t know how affordable the median new home sold in August 2024 is until the first estimate of its cost is released toward the end of September 2024.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 23 August 2024. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 23 August 2024. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 3 September 2024. Note: Starting from December 2022, the estimated monthly mortgage rate is taken as the average of weekly 30-year conventional mortgage rates recorded during the calendar month.

Image Credit: Microsoft Copilot Designer.. Prompt: “An editorial cartoon of a real estate sign that says ‘MEDIAN NEW HOME FOR SALE’”. We made some minor tweaks to the image and added the comment.