Housing Affordability Declines Nearly 23 Percent In Less Than A Year

Starting March of 2021, the National Association of Realtors (NAR) made Housing Affordability Data available to the St. Louis Fed.

This article was originally published by Mish Talk.

What Does Affordable Mean?

The NAR defines affordable as the degree to which a typical family can afford the monthly mortgage payments on a typical home.

It uses median household income, median home, and mortgage rates as factors in its calculation.

Here is a link to the precise affordability calculation.

 Affordability Details 

• Compared to the prior month, the monthly mortgage payment increased by 6.1% while the median family income rose modestly by 0.4%.
• Compared to one year ago, affordability declined in February as the monthly mortgage payment increased by 30.4% and median family income rose by 3.6%.
• The effective 30-year fixed mortgage rate1 was 3.83% this February compared to 2.86% one year ago
• The median existing-home sales price rose 15.5% from one year ago.

I note that compared to March of 2021, the affordability index declined 39.8 points from 170.4 to 135.4.

That’s a decline of 22.7%.

I do not have access to data that goes back further but I got this post idea from a Tweet by Charlie Bilello.

Lowest Level Since 2008

“The US Housing Affordability Index has moved down to its lowest level since 2008. This is based on February data when mortgage rates were over 1% lower than they are today. The result: current affordability is much lower, plummeting over the last 2 months.”

Inflation Has Eaten Up Nearly 100 Percent of Hourly Wage Gains Since 1973

Accounting for CPI inflation, wages for production and nonsupervisory workers is nearly the same today as February of 1973.

For details, please see Inflation Has Eaten Up Nearly 100 Percent of Hourly Wage Gains Since 1973.

Mortgage rates are now above 5 percent and inflation jumped again in March. Expect another big decline in affordability next month.

People get about 25% less house than a year ago on a mortgage payment basis.

Affordability is certainly way down and falling, but I would prefer a measure that looks at resales of the same home vs median price for a more accurate comparison.

Regardless, many people who were trying to buy a few months ago are now out of the bidding, priced out.