If
you
were
fortunate
enough
to
buy
the
typical
U.S.
home
in
June
2022,
you
probably
locked
in
about
$1,400
a
month
in
mortgage
payments.
Due
largely
to

higher
mortgage
rates,
that
same
home
today
would
cost
about
$2,175
a
month.
So
it’s
no
surprise
that
home
sales
over
the
last
two-plus
years
have
been
at
some
of
the

lowest
levels
in
modern
history. 

Yet
despite
this
affordability

crisis,
home
prices
haven’t
declined,
except
in
a
few
of
the
boomiest
Zoomtowns
of
the
pandemic. 

In
this
week’s
edition
of

DataDigest,
we’re
going
to
analyze
what
it
would
take
for
home
sales
to
rocket
in
the
fall
and
winter
of
2024.

Mortgage
payments
are
only
part
of
the
affordability
challenge.
Other
holding
costs
for
real
estate
include

taxes
and

insurance.
According
to
S&P
Global,
insurance
premiums
increased
nationally
by
34%
between
2017
and
2023,
with
even
more
increases
hitting
homeowners
in
2024.

The
costs
to
buy
a
home
have
dramatically
increased
in
recent
years. 

The
other
piece
of
the
affordability
puzzle
is


income.
Affordability
is
the
cost
relative
to
a
buyer’s
ability
to
pay.
As
the
economy
grows
and
incomes
increase,
homes
become
more
affordable
over
time.
By
the
second
half
of
2024,
with
robustly
growing
incomes,

stable
home
prices,
and
interest
rates
that
have
eased
down
off
their
peak,
home
buying
affordability
has
actually
been

improving
for
months.
Even
still,
the
country
faces
a
crisis
in
home-buying
affordability
—
and
homebuyers
have
been
slow
to
respond.

That
leads
us
to
a
couple
affordability
questions
to
tackle:

1. Which
   areas
   are
   the
   most
   and
   least
   
   affordable? 
2. How
   much
   will
   demand
   be
   buoyed
   by
   improving
   affordability
   —
   even
   if
   mortgage
   rates
   never
   return
   to
   the
   pandemic
   lows?

Mortgage
rates
peaked
in
May
2024
and

have
slid
over
100
basis
points
since
then.
As
of
Wednesday,
many
loan
officers
were
quoting
in
the
low
6%
range
for
conventional
conforming
mortgages,
and
in
the
mid-to-high
5%
range
for
government
loan
products.
Each
dip
in
mortgage
rates
improves
affordability
as
payments
on
a
home
purchase
decline.
Mortgage
payments
on
the
typical-price
home
are
7%
lower
than
last
year
and
are
13%
lower
than
the
peak
in
May
2024. 

If
mortgage
rates
continue
their
slide
along
with
expectations
that
the

Federal
Reserve
will
drop
the
short
term
interest
rate
at
upcoming
meetings,
by
the
fourth
quarter
of
2024,
home
purchase
conditions
will
be
at
their
best
level
in
two
years. 

In
the
chart
below
we’re
calculating
a
typical
mortgage
payment
for
a
home
buyer
at
any
given
moment
over
the
last
three
years.
Mortgage
payments
are
a
function
of
the
price
of
the
home,
minus
the
down
payment,
and
the
mortgage
interest
rate. 

If
homebuyers
are
lucky,
mortgage
rates
will
continue
to
slide
into
the
fourth
quarter
2024
and
home
prices
will
tick
down
with
seasonal
trends.
Affordability
will
continue
to
improve.

Will
it
be
enough
to
move
the
needle
for
homebuyers?

Home
sales
volumes
in
2024
have
remained
at
historic
lows,
with
most
measures
of
home
sales
pegging
the
rate
of

existing
home
sales
at
about
4
million
for
the
year.
Even
as
mortgage
rates
have
fallen
in
the
second
half
of
the
year,
there
is
very
little
sign
of
the
sales
rate
improving
yet.
It
doesn’t
appear
that
home
buyers
are
particularly
motivated
by
payments
that
are
14%
cheaper
now
than
they
were
in
May. 

This
may
be
due
to
the
fact
that
mortgage
rates
stayed
higher
—
and
home
purchases
less
affordable
—
for
longer
than
anyone
anticipated
at
the
start
of
2024.
Mortgage
rates
didn’t
finally
recede
until
after
the
prime
demand
part
of
the
season.
Late
in
the
year,
homebuyer
demand
wanes.
So
it
may
be
difficult
to
detect
any
marginal
demand
increases
until
next
spring. 

The
conventional
method
for
ranking
affordability
is
to
compare
an
area’s
median
income
to
its
median
home
price.
Is
a
typical
home
affordable
to
a
typical
family
in
the
area? 

In
2020,
the
median
priced
home
in

Milwaukee
required
just
14%
of
the
median
income
to
buy.
Today
that
ratio
is
31%.
Even
though
Milwaukee
is
among
the
most
affordable
housing
markets
in
the
country,
homes
there
are
affordable
to
a
lot
fewer
people
now.
The
demand
side
of
a
supply/demand
equation
is
much
weaker
in
this
environment.

HousingWire
used
data
from
a
recent
ATTOM
Data
Solutions
report
on
affordability
to
illustrate
the
most
and
least
affordable
housing
counties
in
the
country.

Homeownership
affordability
includes
more
than
just
mortgage
payments.
In
particular,
insurance
can
be
a
significant
portion
of
monthly
payments.
As
climate
disasters
have
increased
in
intensity
and
frequency,
and
as
replacement
costs
for
our
homes
have
risen
as
well,
insurance
costs
are
skyrocketing
in
many
states. 

Property
taxes
are
also
a
significant
factor
for
affordability
for
a
home.
Since
taxes
are
generally
a
fixed
percentage
of
the
home’s
value,
the
cost
moves
directly
with
the
price
of
the
house.
Since
insurance
costs
have
been
increasing
relative
to
the
cost
of
the
home,
we’re
focusing
here
on
adding
insurance
to
the
affordability
ranking,
but
skipping
the
tax
element.

Each
state
regulates
its
insurance
markets
differently.
In
states
with
fewer
controls
on
insurance
pricing,
such
as
Oklahoma
and
Texas
and
Nebraska,
homeowner
insurance
costs
are
dramatically
higher
than
in
states
which
tightly
control
insurance
prices
for
consumers.
According
to
data
from
Bankrate
and
S&P
Global,
typical
insurance
for
a
$300,000
home
in
Oklahoma
is
roughly
$5,000
per
year,
roughly
45%
more
in
2023
than
in
2017.
Insurance
for
the
same
home
in
Vermont
is
just
$806,
an
increase
of
only
6%
between
2017
and
2023.

From
a
monthly
payments
perspective,
while
mortgage
payments
have
added
$800
to
a
monthly
payment
in
Oklahoma
in
the
last
two
years,
insurance
payments
have
added
$200
more
—
a
significant
impact
to
the
unaffordable
premium. 

When
we
combine
the
state’s
average
insurance
costs
to
the
local
price
for
housing,
it
changes
the
concept
of
affordability
a
bit.
Oklahoma
City,
which
has
a
relatively
inexpensive
median
price
in
the
$240,000
range,
has
lower
incomes
and
dramatically
higher
insurance
costs
than
does
a
high
home-price
market
such
as
Portland,
Oregon.
After
accounting
for
insurance,
affordability
in
these
two
areas
starts
to
converge. 

With
these
more
complete
costs
in
mind,
we
learn
a
lot
more
about
home
purchase
behavior.
Many
of
those
same
sunbelt
markets
with
high
insurance
costs
are
also
markets
with
the
greatest
inventory
growth
of
unsold
homes
on
the
market
in
2024. 

At
some
point,
interest
rates
ease
back
down.
Over
time,
incomes
grow.
But
if
these
insurance
costs
are
growing
faster
than
incomes,
the
high
insurance
states
will
face
continued
affordability
challenges
—
even
when
the
states
that
seem
unaffordable
because
they
have
high-priced
homes
actually
improve
relative
to
their
local
buyer
abilities. 

Do
unaffordable
homes
mean
prices
must
fall?

It’s
no
surprise
that
the
coastal
California
markets
are
the
least
affordable
in
the
nation;
California
has
been
unaffordable
for
decades.
If
a
market
is
unaffordable
to
most
of
the
people
who
live
there,
why
doesn’t
that
imply
that
home
prices
must
decline?
How
can
home
prices
stay
unaffordable
forever? 

The
answer
lies
in
the
market
dynamics
of
supply
and
demand.
If
the
inventory
of
homes
available
for
purchase
is
very
low,
these
homes
don’t
have
to
be
affordable
to
the
median
income,
they
only
need
to
be
affordable
for
the
richest
few
buyers.
California
has
a
chronic
shortage
of
inventory
compared
to
the
population.
California
has
10
million
more
people
than
Texas,
but
has
60%
fewer
homes
available
for
buyers.
Restricted
supply
in
California
keeps
homes
chronically
unaffordable.

During
the
last
decade,
American
homeowners
were
blessed
with
ultra-low
mortgage
rates.
In
the
post-pandemic
era,
very
few
homeowners
are
interested
in
selling.
We’ve
written
extensively
about
the

mortgage
rate
lock-in
effect.
As
a
result,
many
parts
of
the
country
that never
previously
faced
inventory
shortages
now
face
California-style
crises.
Across
the
Midwest
and
Northeast,
many
cities
have
75%
fewer
homes
available
for
buyers
than
they
did
a
decade
ago. 

In
the
coming
year,
if
mortgage
rates
ease,
that
could
indeed
incentivize
homebuyers
who
have
been
sidelined
for
two
years.
Watch
these
inventory-deprived
markets,
especially
in
the
Midwest
and
Northeast.
As
buyer
competition
heats
up,
that
could
very
likely
drive
home
prices
higher. 

The
affordability
crisis
isn’t
one
easily
solved.

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