New Home Affordability Crisis Enters 29th Month

Mortgage rates are falling. Estimates of median household income were revised significantly higher. Even new home sale prices fell in August 2024.

But for the 29th consecutive month, the typical new home sold in the United States remains out of the affordable reach of the typical American household. In August 2024, we estimate the mortgage payment for a new home sold at the median sale price would consumer 39% of the household income by a family earning the median household income.

The silver lining is that this figure dropped below the 40% threshold for the first time since this measure of affordability last briefly dipped below it in August 2022. Unfortunately, it is still above the 36% of household income level that represents the upper threshold mortgage lenders use to determine whether they will lend to a household that has no other debt. For households that do have other debts, it is far above the 28% of household income that lenders set as a maximum for how big a mortgage they can borrow from them.

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 August 2024.

The problem of affordability has become a common one for the potential buyers of both new and existing homes. Redfin’s Chen Zhao, who leads economic research at the real estate metric firm, believes prices remain far too high even with falling mortgage rates.

Home prices continue to hit new all-time highs, despite home buyers remaining on the sidelines. Mortgage rates remain elevated, keeping borrowing costs high. Most people aren’t buying homes, because it’s simply too expensive to do so.

That’s a sign of an unhealthy market that begs for a price correction, Chen Zhao, the economics research lead at the real-estate brokerage Redfin told MarketWatch.

“A healthy housing market is a more active one, where people who want to move are able to,” Zhao said.

For that to happen, home prices would need to fall by as much as $121,000 for housing to be affordable again, she estimated. That’s unlikely to happen in the near future, she added: Right now, a median-priced home is about $383,000.

At August 2024′s average 30-year conventional mortgage rate and median household income, a $121,000 reduction in the median sale price of a new home would drop it below the mortgage lender’s 28% threshold of affordability for a new home buying household.

Without a decline in new home prices, it would take the 30-year conventional mortgage rate falling to 3.5% to make a new home that affordable for the typical American household.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 25 September 2024. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 25 September 2024. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 2 October 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 with a real estate sign that says ‘MEDIAN NEW HOME FOR SALE’ and a real estate agent talking with a potential buyer”.