ShareAt the national level, housing affordability declined in January, according to the National Association of REALTORS®' (NAR) Housing Affordability Index. Affordability stayed above 100 for the second consecutive month, standing at 100.7. Higher mortgage rates, combined with increased qualifying incomes, impacted affordability in January, making it less affordable to purchase a home.
Compared to one year ago, affordability declined in January as the monthly mortgage payment increased by 8.4% and median family income rose by 4.5%. This increase in mortgage payments was primarily due to higher mortgage rates in January, which were 32 basis points higher than one year ago (one percentage point equals 100 basis points). Specifically, the effective 30-year fixed mortgage rate was 7.04% in December this year, compared to 6.72% one year ago. The median existing home sales price rose 5.0% ($402,000) compared to the same time last year ($382,900).
Compared to the prior month, the monthly mortgage payment increased by 0.8%, while the median price of single-family homes fell by 1.6%. The monthly mortgage payment decreased by $3 from last month.
The national index is currently above 100, indicating that the typical family earns an income greater than the amount needed to afford a median-priced home. The income required to afford a mortgage—or the qualifying income—is the income needed so that mortgage payments on a 30-year fixed mortgage loan with a 20% down payment account for 25% of family income.
The most affordable region was the Midwest, with an index value of 134.2 (median family income of $100,883 with the qualifying income of $75,168). The least affordable region was the West, where the index was 69.8, with a median family income of $112,078 and a qualifying income of $160,608. The South was the second most affordable region with an index of 103.3 (median family income of $96,346 and the qualifying income of $93,312). The Northeast was the second most unaffordable region with an index of 89.9 (median family income of $112,842 with a qualifying income of $125,472).
A mortgage is affordable if the mortgage payment (principal and interest) amounts to 25% or less of the family’s income.
Compared to one year ago, the monthly mortgage payment increased to $2,148 from $1,981, representing an 8.4% rise. Over the past year, the monthly mortgage payment has increased by $167. The annual mortgage payment as a percentage of income increased to 24.8% in January from 23.9% the previous year.
Regionally, the West has the highest mortgage payment-to-income share at 35.8% of income. The Northeast had the second highest share at 27.8%, followed by the South at 24.2%. The Midwest had the lowest mortgage payment as a percentage of income at 18.6%. Mortgage payments are not burdensome if they do not exceed 25% of a family’s income.
The index in January remained above 100, which means the typical family can afford to purchase a home. Mortgage rates rose in January, surpassing 7% for the first time since May 2022. Home price growth has slowed over the last few months, which has helped affordability. Last week, the Mortgage Bankers Association reported that mortgage applications decreased by 6.2% from the previous week.
The Housing Affordability Index calculation assumes a 20% down payment and a 25% qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions underlying the calculation.
