Average mortgage payment hit 41% of income—highest since 1984
Housing affordability has gotten so bad that it now takes 40.6% of a household’s income to cover principal and interest payments on an average home.
According to real estate analytics firm Black Knight, average monthly mortgage and interest payments increased by $144 to more than $2,500 in the 30 days through Nov. 6.
That’s the highest average monthly payment on record and the worst affordability conditions since 1984.
“Keep in mind, that record-high payment doesn’t include taxes, insurance or any HOA fees that may be part of the homeowner’s monthly expenses,” said Intercontinental Exchange research executive Andy Walden.
Black Knight said rising interest rates, elevated housing costs, and historically low inventories are the main reasons for declining affordability.
Walden compared today’s dire situation to that of the 1980s, when home prices were nowhere near as bad relative to income.
“The last time affordability was this bad in the 80s, rates were in the double digits, and the average home was about 3.5 times median income, in stark contrast to today’s price-to-income ratio of nearly 6-to-1,” he said.
Home price growth far exceeds wage growth
The worsening price-to-income ratio highlights declining household purchasing power for real estate.
Since the first quarter of 2020, the average sales price of a U.S. home has increased by 31%, or just over $100,000, according to Fed data. Over the same period, average household income budged higher by just 10%.
But there’s reason to believe that households’ financial situation is even worse than these numbers depict.
For starters, real household incomes fell by 2.3% in 2022, meaning American families earned less after accounting for inflation.
Not only that, a separate data set from the St. Louis Fed shows that real household income has been in decline since the start of Covid.
Before the pandemic, economists recommended that buyers purchase a home that costs roughly 2.6 years of income. That threshold is now out the window as it takes over seven years of household income to afford an average home.
Housing affordability declines in 99% of U.S. counties
For most Americans who don’t own a home, the hope of ever buying one is increasingly fading away.
Real estate data firm ATTOM tracked home prices across roughly 575 U.S. counties and found that housing affordability relative to the historical average declined in 99% of counties.
ATTOM CEO Rob Barber says affordability could be the last straw that breaks the camel's back, eventually sending housing prices into a tailspin.
“The dynamics influencing the U.S. housing market appear to continuously work against everyday Americans, potentially to the point where they could start to have a significant impact on home prices,” he explained.
“We clearly aren’t there yet,” Barber said, but that could change as more buyers are priced out of the market.