Housing affordability in the United States has shown notable improvement in August due to declining mortgage rates, although households are still earning significantly less than required to afford a home, according to insights from Redfin. The annual income necessary to purchase a median-priced home decreased by 1.4% year-over-year to $115,454 last month, marking the first reduction since June 2020, when mortgage rates reached an all-time low, as reported by the real estate brokerage.
In this context, mortgage rates experienced their first annual decline in three years during August, with the average interest rate on a 30-year mortgage dropping from 7.07% a year earlier to 6.5%. Currently, Redfin indicates that rates stand at approximately 6.09%. Elijah de la Campa, Senior Economist, remarked, "Housing affordability is improving for the first time in four years.
If you're in a position to buy a home, now may be an optimal time because it's unlikely prices will significantly decrease in the near future." This optimistic outlook highlights the potential for buyers considering entering the housing market. Despite this, data show that the typical household's annual income is estimated to be around $83,853, which is 27% lower than what is needed to purchase a typical home.
Only 31% of home listings are now affordable for the average US household, a stark decline from over 50% before the COVID-19 pandemic, according to the elaborated report. Redfin's definition of affordability considers a home affordable if buyers allocate up to 30% of their income towards monthly housing payments.
For instance, in Austin, Texas, buyers needed an annual income of $133,346 in August to afford the median-priced home, which represents a 7.9% decrease year-over-year, the largest drop among the 50 most populous metropolitan areas tracked by Redfin. Conversely, Philadelphia has seen the highest increase in income requirements, with buyers needing to earn $82,447, up 5.8% from the previous year, according to the detailed findings.
Looking ahead, mortgage rates are predicted to remain stable without significant reductions in the immediate future. This projection stems from the Federal Reserve’s recent interest rate cut and anticipated future policy easing, both of which are likely already factored into existing rates. As de la Campa explained, "When the Fed cuts short-term interest rates, long-term rates, such as mortgage rates, do not always decrease correspondingly." For prospective homebuyers, waiting for lower prices could lead to higher down payments as housing prices generally trend upwards over time.
Notably, home prices have increased by 3% over the last year and remain just 2.1% below their historical peak in light of an ongoing inventory shortage, according to the comprehensive report by Redfin. Price: 12.74, Change: +0.15, Percent Change: +1.23.