New Home Affordability Crisis Now 30 Months Old, Younger Americans Priced Out

Mortgage rates fell to their lowest level since early 2023. Despite that happening, the relative affordability of new homes was almost unchanged from the previous month because their prices rose. For a household earning the median household income, the average mortgage payment for a new home would consume 38% of its pre-tax income.

That puts the affordability of a new home above the 36% of pre-tax income that marks the upper bound for 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 well elevated above the 28% of household income that lenders set as a maximum for determining how much mortgage they can afford.

That’s been the state of affairs for prospective American homebuyers for 30 consecutive months. 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 September 2024.

This month provided more evidence of which American households are being priced out of the U.S. new home market. The households headed by younger Americans are the ones who have been on the losing end of the new home affordability crisis:

The average age of homebuyers in the U.S. has risen by six years since July 2023 — another sign that younger Americans are being priced out of the market due to escalating ownership costs.

The average age of homebuyers is now 56, up from 49 in 2023, according to the National Association of Realtors’ annual state-of-the-market report released Monday. That’s a historic high, up from an average age in the low-to-mid 40s in the early 2010s….

“In my two decades in the mortgage business, I’ve never seen a more difficult time for millennials to purchase a home,” says Bob Driscoll, senior vice president and director of residential lending at Massachusetts-based bank Rockland Trust.

That’s largely due to rising homeownership costs, he says. The median U.S. home price is now $435,000, per NAR — up 39% since 2020 — while the average 30-year fixed mortgage rate has more than doubled to over 6% in that time.

With mortgage rates having rebounded in October 2024, the new home affordability crisis has a very high likelihood of extending into its 31st month.

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 of a new home salesperson listening to an upset buyer who earns the median household income”. And as AI has taught us, all new home salespeople have six fingers on each hand….