Housing affordability worsened slightly in October, according to the latest National Association of REALTORS®’ (NAR) Housing Affordability Index, and the qualifying income to afford a median-priced home rose above $100,000 again after briefly dipping below that benchmark.
After the index fell sharply during the summer as mortgage rates climbed above 7% and home prices continued to rise, a dip in rates brought affordability back to more normal levels in September, as a family making the national median income was once again able to afford a median-priced home (based on a 20% down payment and 25% qualifying ratio).
But in October, as rates see-sawed back above 6.5%, the index reversed slightly, falling from 104.9 to 102.3, with the average mortgage payment standing at $2,086. Qualifying income rose to $100,100—having reached a high of $110,600 this year in June, before falling back to $97,400 in September.
“It’s been rather difficult (for buyers to find affordable homes) due to limited inventory and higher interest rates, which have reduced buying power,” says Josh Jarboe, broker/owner of RE/MAX Empire Buyers in Kentucky. “Buyers are being squeezed on both sides, (with) fewer options and higher monthly payments.”
Regionally, the country remains split, with the Midwest and South offering significantly more affordability, while the West and Northeast fall on the other side, as buyers need more than the median income to afford a median-priced home.
The Affordability Index for the West came in at 71.2, driven by a tremendous gap between median incomes and median home price ($155,000 for incomes, $639,000 for home prices).
The qualifying income for a family in the West to afford a median-priced home was just over $155,000—more than double that of the Midwest, where a family only needed $74,800 to afford the median home.
Pam Rosser Thistle, an agent for Berkshire Hathaway Homeservices Fox & Roach, REALTORS® in Pennsylvania, urges agents to keep moving forward and focus on helping people who are struggling with affordability rather than trying to predict where rates will go.
“I think we have learned to live in the moment,” she says. “How many times have we braced for rates to come down significantly, and they bobbled, but basically stayed about the same? We have to learn to live with where we are.”
Rosser Thistle says in her market, most buyers “have a feel for pricing” as they confront affordability issues. At the same time, though, she says some are “quietly quitting” their search for a home, “feeling as though homeownership is not within reach.”
She adds that FHA loans are becoming more popular, which can sometimes be “paired” with grant money.
Jarboe says he urges buyers to start working with a local lender “to explore creating financing options and understand your true budget.” Included in that is rate buy-downs, which are a “game-changer” for many, he adds.
“Sometimes a small change in your loan strategy or assistance programs can open up more possibilities,” he claims.
With rates only part of the equation—albeit a major part—affordability remains a greater challenge, with incomes still nowhere close to keeping up with home prices—a dynamic that Jarboe points to in the longer term.
“Affordability will likely remain a major concern unless interest rates come down or inventory increases,” he says. “Changes in zoning laws or new construction incentives could also ease the strain on affordability.”
Here is the affordability data for October 2024:
Median home price: $412,200
Monthly payment*: $2,086, or 24.4% of median income
Median family income: $102,400
Qualifying income: $100,100
*principle and interest, no other expenses
