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According to NAR's Housing Affordability Index, housing affordability declined nationally in May compared to the previous month. The monthly mortgage payment increased by 3.9%, while the median price of single-family homes rose by 5.7% (from $401,500 to $424,500) year-over-year. The monthly mortgage payment increased by $87 from last month.
Compared to one year ago, affordability fell in May as the monthly mortgage payment climbed 12.7% and median family income rose by 5.3%. The effective 30-year fixed mortgage rate was 7.14% this May compared to 6.51% one year ago. Nationally, mortgage rates were up 63 basis points from one year ago (one percentage point equals 100 basis points). Mortgage rates moved above 7% for the second time since last year (November 2023). The median existing-home sales price rose by 5.8% to $419,300 compared to one year ago ($396,500).
The national index is currently below 100, which means that the typical family cannot afford to buy based on the median-priced home. An index below 100 means that a family with a median income had less than the income required 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 120.3 (median family income of $99,752 with a qualifying income of $82,896). The least affordable region remained the West, where the index was 66.8 (median family income of $111,727 and the qualifying income of $167,136). The South was the second most affordable region with an index of 95.7 (median family income of $94,272 and the qualifying income of $98,544). The Northeast was the second most unaffordable region with an index of 90.5 (median family income of $114,506 with a qualifying income of $126,528).
A mortgage is affordable if the mortgage payment (principal and interest) amounts to 25% or less of the family’s income.
Housing affordability declined in all four regions from a year ago. The Northeast region experienced the biggest decline, 10.1%, followed by the Midwest, which dipped 7.1%. The West experienced a weakening in price growth of 5.9%, followed by the South, which fell 4.1%.
Affordability fell in all four regions from last month. The Midwest region had the biggest decline of 4.8%, followed by the Northeast with a fall of 4.4%. The South had a decrease of 2.2%, and the West had the smallest reduction of 0.7%.
Compared to one year ago, the monthly mortgage payment rose to $2,291 from $2,032, an increase of 12.7%. A year ago, the monthly mortgage payment increased by $259. The annual mortgage payment as a percentage of income inclined to 26.9% this May from 25.1% from a year ago. Regionally, the West has the highest mortgage payment to income share at 37.4% of income. The Northeast had the second-highest share at 27.6%, followed by the South at 26.1%. The Midwest had the lowest mortgage payment as a percentage of income at 20.8%. Mortgage payments are not burdensome if they are no more than 25% of income.
Home prices are still outpacing median family incomes. Mortgage rates have been above 7% for two consecutive months. Coming back down below 7% will certainly be helpful to potential home buyers. Last week, the Mortgage Bankers Association reported that mortgage applications decreased 2.6% from one week prior. Housing inventory is increasing, so that is a good sign for potential home buyers.
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 behind the calculation.
