Homeownership hasn’t been affordable in over 4 years
Higher home prices, insurance costs and tax bills are countering the past few months of falling mortgage rates, which remain at relatively high levels.
Key points:
- Despite a steady decline in mortgage rates, housing affordability challenges persist, with the share of median income needed to make a home payment reaching 47% from May through August.
- But regional differences in affordability are growing as more markets experience price declines.
- With the market tilting in buyers’ favor, fewer home shoppers are making all-cash offers as they face less competition.
While the steady decline in mortgage rates is bringing some improvement to housing affordability, high home prices paired with rising taxes and insurance costs continue to leave homeownership out of reach for many.
Prospective buyers would need to shell out nearly half their paycheck to cover current monthly housing costs, according to the Atlanta Federal Reserve. The agency found that the share of median income needed to own a median-priced home was 47% from May through August — a level that hasn't been topped in over two decades. It's been more than four years since that share was below 30%, which is the U.S. Department of Housing and Urban Development's threshold for measuring affordability
While the surge in home prices over the past four years is mostly to blame for affordability challenges, insurance and property taxes have also climbed after years of relative stability. In August 2021, the median monthly bills for insurance and property taxes were $127 and $343, respectively. Four years later, those bills rose to $210 and $426.
Regional price differences growing
While national data paints a grim picture, affordability varies widely by location.
Data included in the First American Data & Analytics Home Price Index for September found year-over-year drops in 19 of the 30 largest markets that First American studied for its report. This indicates that more areas in the country are gaining negotiating power, according to Mark Fleming, chief economist at First American.
"The housing market's steadily unfolding cooldown has now reached 10 consecutive months of slowing annual price appreciation," Fleming said.
The data showed big year-over-year increases in Cincinnati (up 8.4%), New York City (up 5.1%) and Cambridge, Massachusetts (up 3.9%). But affordability improved significantly in Oakland, California, with the price index dropping 7.4% year-over-year. Other cities with notable year-over-year price index drops included Tampa, Florida (down 5.9%), Phoenix (down 4.5%) and Riverside, California (down 3.6%).
The share of all-cash offers is dropping …
Meanwhile, the trend of paying all cash for a home is becoming less common as mortgage rates inch down, according to an Oct. 17 Redfin report.
Just under 29% of U.S. homebuyers paid all cash in August, down from nearly 35% in late 2023 when mortgage rates were peaking. In addition to recent improvements in financing affordability, the drop in all-cash buyers can be attributed to a stronger buyers market.
"First-time buyers have more opportunities than they did when the market was hot; they're no longer competing against 10 other offers from people who are either paying in cash or shelling out a 50% down payment," said Kathy Scott, a Redfin Premier agent in Phoenix.
… but down payments are growing
Redfin's report also found that buyers are generally making larger down payments. The typical down payment hit $70,000 in August, up 6.1% year-over-year and the highest amount Redfin has recorded.
This trend suggests that the market remains tilted to favor buyers who are more affluent and feel secure in their jobs — factors that give them more flexibility as mortgage rates remain elevated. Even so, the slower market is also opening doors for first-time buyers who, although unable to swing a big down payment, are not facing as much market competition, the report suggested.