US housing affordability is low despite drop in prices

The inability of potential buyers to purchase homes in the US currently provides the largest threat to growth in single-family home construction

Many economists are forecasting a decline in US home sales and housing starts in 2023.

According to data used in the National Association of Realtors’ Housing Affordability Index, significant issues have arisen that highlight housing’s current unaffordability.

Housing factors at play

One of those issues is the reversal in the relationship between median family incomes and the amount of money it takes to buy a house. To qualify for a home, the Housing Affordability Index uses a dollar amount based on a 25% qualifying ratio for monthly housing expense to gross monthly income with a 20% down payment.

Last November’s index, the latest reading available, indicated it took $94,416 in annual income to qualify for a median-priced existing single-family home. However, to the chagrin of consumers looking to purchase a home, median family income had fallen below that figure, coming in at $90,211.

In fact, since May of last year, median family income has remained below the amount needed to qualify for a median-priced home in all but one month. That was in August, when the effective mortgage rate on loans closed on existing homes dropped to 5.29%, the lowest level since April.

Over the span of one year beginning in November 2021, the median price of an existing home went from $365,000 to a high of $420,900 in June, before falling to $376,700 near the end of last year, a gain of 3.2%. At the same time, median family income increased 5.3%.

However, the monthly principal and interest payment on a median home jumped 57.4% in one year, largely due to the rise in interest rates, thus sending the Housing Affordability Index from 142.7 down to 95.5.

Stay ahead of wood products market changes by joining your peers in subscribing to the Random Lengths weekly reportSpeak to our team and find out more about our price products, forecasts and how Fastmarkets can help your business.

What to read next
After a consultation period that began on February 19, 2024, and ended on March 21 2024, Fastmarkets has discontinued Region 4 log prices. The last assessment published March 2024.  To provide feedback on this or if you would like to provide price information by becoming a data submitter to Log Lines, please contact William Perritt […]
Andy Farida, Fastmarkets base metals research analyst, looks at the effect of the US elections on US aluminium prices
With the recent launch of US/Canada lithium prices, Fastmarkets explores the motivation for the introduction and the reasons why this is an important development for the North American market
Paracel’s current 103,000 hectares (ha) of eucalyptus plantations are sufficient for the start-up of the company’s planned new greenfield mill in Paraguay by 2027, chief executive officer Flavio Deganutti confirmed to Fastmarkets in an exclusive interview. Paracel has continued to make progress in its project to build a new 1.8-million-tonne-per-year bleached eucalyptus kraft (BEK) pulp […]
U.S. housing starts in February posted a double-digit percentage increase month-over-month as construction picked up following a weather-related lull in January. Want to predict the future of the lumber market? Learn more about our short-term and long-term forecasts and asset analysis for the global forest products market today. Learn more. The Census Bureau reported total U.S. starts at […]
No feedback was received during the consultation period and therefore we will discontinue Region 4 pricing. This consultation, sought to ensure that our methodologies continue to reflect the physical market under indexation, in compliance with the International Organization of Securities Commissions (IOSCO) principles for Price Reporting Agencies (PRAs). This includes all elements of our pricing […]