What's Happening?
According to a recent analysis by Realtor.com, the affordability of median-priced homes in the United States has significantly decreased since 2019. The analysis indicates that mortgage payments for these
homes now consume over 30% of median household income, compared to about 21% in 2019. This change is attributed to a sharp increase in home prices and nearly doubled mortgage rates since January 2022. To restore affordability to 2019 levels, either household incomes would need to rise by 56% to a median of $132,171, or mortgage rates would need to fall to 2.65% from the current 6.15%. However, neither scenario appears likely in the near term, as real median household income has only increased by about 17% over the past two decades, and mortgage rates are expected to remain near 6% through 2026.
Why It's Important?
The decline in housing affordability has significant implications for the U.S. economy and society. As housing becomes less affordable, it can lead to decreased homeownership rates, which may impact wealth accumulation and economic stability for many families. The mismatch between housing supply and demand exacerbates the issue, potentially leading to increased rental demand and higher rental prices. This situation could further strain household budgets and limit consumer spending in other areas, affecting overall economic growth. Additionally, the housing market's challenges may influence public policy decisions, as lawmakers and stakeholders seek solutions to improve affordability and address supply shortages.
What's Next?
Looking ahead, the National Association of Realtors projects a 4% increase in home prices by 2026 due to renewed demand and persistent supply shortages. If buyer demand strengthens without a corresponding increase in housing supply, price growth is likely to continue. This scenario may prompt policymakers to explore measures to boost housing supply, such as incentivizing new construction or revising zoning regulations. Additionally, stakeholders may advocate for policies that support income growth or provide financial assistance to homebuyers to mitigate affordability challenges.
