High mortgage rates, a lack of inventory and elevated home prices have turned 2023 into the least affordable year for homebuyers on record. Luckily, economists are projecting some improvements for next year, according to a Redfin analysis released on Thursday.
For an American earning $78,642, the country’s median income in 2023, the purchase of a median-priced home of $408,806 meant spending 41.4% of their annual income on monthly housing costs, up from 38.7% in 2022.
“A perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history,” Redfin Senior Economist Elijah de la Campa said in the report.
One of the reasons why housing affordability has dwindled is because wages didn’t increase as fast as homebuying costs, Redfin found. The median monthly housing payment in 2023 peaked at $2,715, up 12.6% from 2022. Meanwhile, the median household income only rose 5.2%, reaching an estimated $78,642.
The Federal Reserve’s restrictive monetary policy and rate hikes contributed to the surge in mortgage rates this year. In October, the average 30-year fixed mortgage rate peaked at 7.79%, a 23-year record.
Elevated mortgage rates dampened homebuyer demand while a shortage of existing-home inventory kept prices elevated despite fewer buyers in the market. The median home sale price in 2023 was $408,806, the highest price of any year on record according to Redfin.
Anaheim, California and Miami became much more expensive in 2023
Anaheim, California, Miami, West Palm Beach, Florida, San Diego and Newark, New Jersey, posted the biggest decreases in affordability in 2023.
In Anaheim, California, for instance, it took 88.3% of a person’s income to afford a median-priced home of $1,022,075, up from 80.2% in 2022. That was the biggest jump recorded among the 50 most populous metros.
Meanwhile, Detroit, Oakland, California, Phoenix and Las Vegas posted the smallest decreases in affordability.
Austin, Texas is the only metro that became more affordable in 2023 as it posted the biggest year-over-year, home-price decline (-9.2%).
The good news: Affordability improves heading into 2024
As mortgage rates fell in November, housing costs declined. During the four weeks ending Nov. 26, the typical homebuyer’s monthly payment was $2,575, down from $2,739 the previous month but up 13% year over year.
“Mortgage rates are coming down, more people are listing homes for sale, and there are still plenty of sidelined buyers ready to take a bite of the fresh inventory. We expect these conditions to continue to improve in 2024,” de la Campa said.
