Compared to a year ago, the income needed to purchase a median-priced existing home rose again during the first quarter of 2023. However, lower mortgage rates and seasonally-lower home values improved home affordability a bit compared to the last quarter of 2022.
May 19, 2023 - HSH.com, a trusted online resource for mortgage data, content and expertise updated its analysis of the salary required to afford a median-priced home in the top 50 metropolitan areas for the first quarter of 2023. The report uses the latest quarterly existing home price data from the National Association of Realtors (NAR), incorporates local property tax and homeowner’s insurance costs, and calculates the income needed to qualify for a median-priced home in each market.
The first quarter of 2023 brought a bit of better news for potential homebuyers. Mortgage rates were lower in the first quarter of 2023; it was the first time since our third quarter 2021 review that mortgage rates declined. While the change in direction didn't suddenly make mortgage money cheap again, it did provide a bit of relief for those in the market.
At the same time, and combined with seasonally-lower home prices across most markets, relative home affordability improved, and the income needed to buy a home in the first quarter of 2023 was less -- sometimes considerably so -- than was the case in the fourth quarter of 2022. Across all markets, the median decline in income needed to purchase a median-priced home was over $5,000,
The good news ends there, however, Annual references still aren't very favorable, although they are improved in a relative sense. The annual income needed to buy a median-priced home across all 50 metros tracked by HSH is still nearly 26% higher in the first quarter of 2023 compared to the first quarter of 2022, so home affordability on this basis is still very difficult, with income requirements still far outstripping income gains over the last year. That said, the 26% year-over-year increase does compare more favorably against 4Q22's nearly 46% increase.
While significantly lower mortgage rates don't seem in the offing, home prices are declining across a wide swath of markets. Sequential quarterly declines were seen were seen in 39 metros; for 31 of these, it marked the third consecutive quarter where prices were lower compared to the prior period, and another eight metros now sport back-to-back declines. Twenty-three of the top 50 metros now feature year-over-year declines in median home prices ranging from 0.19% to as much as 13.69%. With peak prices last year occurring in the second quarter of 2022, additional annual declines across more metros are likely.<
The most and least affordable metro areas in the income-required analysis (assuming a 20% down payment):
|
Most affordable metropolitan areas |
Required salary per year to afford a median-priced home |
|
1. Pittsburgh |
$50,316.15 |
|
2. Cleveland |
$55,515.10 |
|
3. Oklahoma City |
$62,161.45 |
|
Least affordable metropolitan areas |
Required salary per year to afford a median-priced home |
|
1. San Jose |
$373,696.26 |
|
2. San Francisco |
$282,166.60 |
|
3. San Diego |
$209,110.40 |
Salary calculations using a 10% downpayment and including PMI are also provided for each area.
Main takeaways from the updated analysis:
- The first quarter of 2023 saw an increase in affordability compared to the previous quarter. Lower mortgage rates during the period enhanced the benefits from a wider and more pronounced seasonal decline in median home prices.
- Home prices continued to retreat from record highs. Relative to the fourth quarter of any given year, the first quarter of each year usually sees firming in home prices as the early portion of the "spring homebuying season" gets underway. That trend was weaker than usual this year; the monthly increase in median prices from January to March was just 4% this year, the smallest gain of the last four comparable periods.
- Home affordability improved across nearly all of the top 50 metro areas during the period. The income needed to purchase a median-priced existing home was lower this quarter than last, both nationally and in 48 of the 50 metros tracked by HSH. However, compared to the same period a year prior, purchasing a nationally median-priced home required in the first quarter of 2023 required almost 28% more income, a relative improvement from 4Q22's near 49% annual increase in income needed.
- Mortgage rates declined during the period. For the first quarter of 2023, mortgage rates were lower. It was the first quarterly decline for mortgage rates since the third quarter of 2021, and the decline was fairly meaningful at 47 basis points (0.47%), a drop from a 21-year high in 4Q22.
- Still-high home prices mean a greater need for borrowers to save. With home prices softening a little during the first quarter of 2023 -- and in some cases lower than year ago levels -- amassing the funds needed to make a downpayment on a median-priced home was slightly less onerous. The 20% downpayment we use in our base calculations (or even 10% with PMI, found on each metro-area panel) remains unattainable even for the most diligent savers. To make a a 20% downpayment for a national median-priced home in the first quarter of 2022 would have required $74,400; in the first quarter of 2023, this amount was still $74,240. The fourth quarter of 2022's requirement was $75,680, so there's been a modest (although welcome) decline lately.
- There continue to be too few homes available to buy, and improvement is grudging at best. At the average rate of sale during the period, the National Association of Realtors estimated that there were about 2.7 months of supply available during the first quarter of 2023. This was tighter than the 3.2 months for the fourth quarter of 2022. A range of factors are keeping home sellers on the sidelines, including a lack of homes to buy, high home prices and unfavorable financing conditions.
These items and other observations are discussed in greater detail in the “Latest Analysis” component of the report.
With affordability on the wane, potential homebuyers of more modest means looking to buy homes may struggle to come up with a down payment and closing costs, especially in heated markets. Help making the jump to homeownership is often available but is tricky to find if you don't know where to look. To help potential homebuyers, HSH offers its database of Homebuyer Assistance Programs by state, where information about these valuable programs, vital website addresses, contact info and more can be found.
Find the lists here for the 25 most expensive and 25 least expensive metropolitan areas with display maps for each list.
Since 1979, HSH.com has been a trusted mortgage resource for consumers seeking independent, objective and expert-level information, forecasts and data. HSH.com offers unique analysis, calculators, tools and content to help demystify first mortgages, home equity loans and lines of credit, reverse mortgages and more. HSH.com empowers homebuyers and homeowners to fully understand their home financing choices and provide opportunities for them to engage with partners to execute their transactions. Keith Gumbinger, mortgage expert and vice president of HSH.com, is available for interviews at your request.
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