Affordability Conditions Continue to Weaken in June 2023

At the national level, housing affordability declined in June compared to the previous month, according to NAR’s Housing Affordability Index. Compared to the prior month, the monthly mortgage payment increased by 6.6%, while the median price of single-family homes increased by 3.6%. The monthly mortgage payment increased by $135 from last month.

Compared to one year ago, affordability fell in June as the monthly mortgage payment climbed 12.1% and median family income rose by 4.2%. The effective 30-year fixed mortgage rate was 6.79% this June compared to 5.60% one year ago, and the median existing-home sales price fell 1.2% from one year ago.¹

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 113.7 (median family income of $89,751 with a qualifying income of $78,912). The least affordable region remained the West, where the index was 64.1 (median family income of $99,775 and the qualifying income of $155,568). The South was the second most affordable region with an index of 89.4 (median family income of $83,732 and qualifying income of $93,696). The Northeast was the second most unaffordable region with an index of 85.5 (median family income of $103,578 with a qualifying income of $121,104).

A mortgage is affordable if the mortgage payment (principal and interest) amounts to 25% or less of the family’s income (housing costs are burdensome if they take up more than 30% of income). The 25% share of mortgage payment to income considers that homeowners have additional expenses such as mortgage insurance, home insurance, taxes, and expenses for property maintenance.

Housing affordability had double-digit declines from a year ago in only the Northeast region. The Northeast had the biggest decline of 10.1%, followed by the Midwest, with a dip of 8.8%. The South experienced a weakening in price growth of 4.9%, followed by the West, which fell 2.0%.

A Home Affordability Index (HAI) value of 100 means that a family with a median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20% more than the level of income needed pay the mortgage on a median-priced home, assuming a 20% down payment so that the monthly payment and interest will not exceed 25% of this level of income (qualifying income).

Affordability was down in all four regions from last month. The Midwest region had the biggest drop of 4.7%, followed by the Northeast with a decline of 4.4%. The West decreased by 4.3%, followed by the South region had the smallest decline of 3.0%.

Nationally, mortgage rates were up 119 basis points from one year ago (one percentage point equals 100 basis points) from 5.60 to 6.79%.

Compared to one year ago, the monthly mortgage payment rose to $2,167 from $1,933, an increase of 12.1%. Since a year ago, the monthly mortgage payment increased by $234. The annual mortgage payment as a percentage of income increased to 28.5% this June from 26.5% a year ago. Regionally, the West has the highest mortgage payment to income share at 39.0% of income. The Northeast had the second-highest share at 29.2%, followed by the South with a share of 28.0%. The Midwest had the lowest mortgage payment as a percentage of income at 22.0%. Mortgage payments are not burdensome if they are no more than 25% of income.

¹ Starting in May 2019, FHFA discontinued the release of several mortgage rates and only published an adjustable-rate mortgage called PMMS+ based on Freddie Mac Primary Mortgage Market Survey. With these changes, NAR discontinued the release of the HAI Composite Index (based on a 30-year fixed rate and ARM) and, starting in May 2019, only releases the HAI based on a 30-year mortgage. NAR calculates the 30-year effective fixed rate based on Freddie Mac's 30-year fixed mortgage contract rate, 30-year fixed mortgage points and fees, and a median loan value based on the NAR median price and a 20% down payment.