Housing affordability is at the lowest level in over a decade

Home prices are finally falling after hitting an all-time high in 2022, but home ownership is still out of reach for many Americans.

Atlanta Fed Housing Affordability Monitorwhich compares median house prices and other housing costs with median household income, shows that housing affordability worse today than during the peak of the 2008 housing bubble. As of December, the median U.S. household had to spend about 42.9% of their income to afford an average-priced home, according to the index.

That’s nearly the highest since August 2006, when the median US household had to spend about 41.1% of their income to afford a median-priced home.

This is also well above the 32.6% share just a year ago; at this rate, the average American pays about $607 more per month own a house at an average price compared to last year.

The rapid decline in affordability is associated with the highest mortgage rates in recent years and high housing prices.

During COVID-19 pandemichousing prices soared at a rate not seen since the 1970s, and mortgage rates approached record lows. Homebuyers full of stimulus money and hungry for more space during the pandemic have flocked to the suburbs.

Demand was so high, and stocks so low, that at the height of the market, some buyers refused to inspect and evaluate houses or paid hundreds of thousands more than the asking price.

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The madness stopped when Federal Reserve launched the most aggressive campaign to raise interest rates since the 1980s in an attempt to slow the economy and quell runaway inflation.

The interest-rate sensitive housing market has so far suffered from monetary tightening. Although mortgage rates have fallen from a peak of 7.08% in November, they have recently reversed this trend and started to rise amid concerns about higher interest rates. Average rate for 30 year fixed mortgage rose to 6.65% this week, according to from mortgage lender Freddie Mac.

This remains significantly higher than just a year ago, when rates hovered around 3.76%.

Demand from homebuyers dried up as consumers faced the highest mortgage rates in years, pushing home prices even further. According to Redfin, the median price of a home sold in January was $383,249, down 11.5% from its peak of $433,133 in May.

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Yet even as higher mortgage rates make home ownership out of reach for millions of Americans, many home prices are still higher than they were a year ago. In December, the total cost of homes in the US was still up 6.5% compared to the same period a year ago.