Record High Housing Affordability in 2023
2023 has officially marked the least affordable year for homebuyers in Redfin’s history, with buyers having to spend a staggering 41% of their earnings on housing costs. This increase is a result of rising home prices, soaring mortgage rates, and stagnant wage growth. Homebuyers in 2023 faced a median-priced home of $408,806, and with the average 30-year mortgage rate peaking at 7.79% in October, monthly payments surged to a record $2,715.
The median income in the U.S. was estimated at $78,642 in 2023, which means the typical homebuyer needed to spend 41.4% of their monthly earnings on housing costs—up from 39% in 2022. This figure surpasses the common personal finance recommendation that no more than 30% of a person’s income should be allocated to housing.
Regional Affordability Breakdown
Housing affordability varied greatly across U.S. metro areas in 2023. In high-cost regions like Anaheim and San Francisco, homebuyers with median incomes would need to spend over 80% of their earnings on housing costs. In Anaheim, the median home price reached $1,022,075, resulting in an astonishing 88.3% of earnings going toward housing expenses. Other California metros, such as San Jose, Los Angeles, and San Diego, were similarly unaffordable.
On the other end of the spectrum, metros like Detroit, Pittsburgh, and Cleveland remained much more affordable. In Detroit, for example, the typical homebuyer would only need to spend 18.5% of their earnings on housing costs. These areas, with median home prices under $300,000, are some of the most affordable in the nation.
A Glimmer of Hope for 2024
The good news for prospective homebuyers is that affordability is expected to improve in 2024. Mortgage rates are already starting to decline, and there has been an increase in housing supply as more sellers are entering the market. As these conditions continue to improve, housing affordability should gradually get better in the coming year.
For instance, mortgage rates have fallen from a peak of 7.79% in October to 7.22%, and Redfin predicts that rates will fall further to about 6.6% in 2024. Additionally, home prices are expected to drop by 1%, which could bring some relief to buyers in terms of both down payments and monthly mortgage payments.
Regional Trends: Some Areas Showing Improvement
Austin, TX, stands out as the only major metro where affordability improved year-over-year in 2023. The typical homebuyer in Austin spent 36.6% of their income on housing costs, down from 37.7% in 2022. This was largely due to a significant decline in home prices, which dropped by 9.2% from 2022.
Other metros that saw smaller increases in housing costs include Detroit (+0.7 percentage points), Oakland (+0.7 percentage points), and Phoenix (+0.9 percentage points). On the other hand, metros like Anaheim, Miami, and West Palm Beach saw the largest declines in affordability, with costs rising by more than 5 percentage points in some cases.
Conclusion
2023 has been a challenging year for homebuyers, with affordability at its worst. However, the outlook for 2024 is more optimistic. As mortgage rates decline and housing inventory increases, buyers should find some relief, especially in markets that have already seen price declines. While affordability will remain a challenge for many, there are signs of improvement on the horizon, offering hope to prospective homeowners in 2024.