Economic Watch: Soaring costs push U.S. homes out of reach for most buyers

LOS ANGELES, Sept. 22 (Xinhua) — With the gap between income levels and housing costs continually widening, the U.S. housing market has become increasingly unaffordable for homebuyers across all income levels, a trend experts say has accelerated since the pandemic.
Housing affordability in the United States hit a record low last year, the worst since 1989 when data collection began. Soaring mortgage rates, which averaged seven percent in 2023, have worsened the situation, according to the latest data from the National Association of Realtors (NAR).
The NAR’s Housing Affordability Index (HAI) for July 2024 dropped below 100 at the national level, indicating that the typical American family now earns less than what is needed to afford a median-priced home, Nadia Evangelou, NAR’s senior economist and director of real estate research, said in a recent mid-September analysis. The index has been staying underwater for four consecutive months.
Regionally, the U.S. West was the least affordable with an index of 69.1, followed by the Northeast at 87.9, while the Midwest remained the most affordable at 122.3, NAR’s July data showed.
The COVID-19 pandemic, which began in early 2020, has exacerbated this affordability crisis. In 2019, 59.2 percent of households could afford a median-priced home, but by 2024, that figure had plummeted to 32.6 percent.
Renters are faring even worse, with affordability rates dropping from 41.7 percent in 2019 to just 17.2 percent in 2024, Evangelou’s analysis revealed.
In April, Montana and Idaho surpassed California as the most unaffordable states for local homebuyers, with Hawaii and Oregon rounding out the top five, according to the NAR’s Affordability Distribution Score. This score, which assesses affordability across various income levels — not just median incomes — analyzes data from all U.S. states and the 100 largest metropolitan areas. A score of one indicates homes on the market are affordable to households in proportion to their income levels, while zero means no household can afford any homes on the market.
Since April 2022, all U.S. states have scored below one, with Montana at the bottom with a score of 0.38 and Iowa topping the list with 0.89.
At the metro level, Los Angeles-Long Beach leads as the least affordable metro area with a score of just 0.28, followed by other Southern California regions: Oxnard-Thousand Oaks-Ventura (0.31) and San Diego-Carlsbad (0.32).
Despite its reputation for a high cost of living, the New York-Newark metropolitan area fared somewhat better, with a score of 0.4.
Housing costs in California have long been higher than the national average. In recent years, these costs have grown substantially, in some areas, growing at historically rapid rates.
A report from the California Legislative Analyst’s Office last month highlighted that homes in the state are now roughly twice as expensive as the typical U.S. home. Since 2020, the combined impact of rising home prices and mortgage rates has made homeownership in California increasingly unaffordable, with housing costs far outpacing wage growth.
This trend aligns with a June report from Harvard University’s Joint Center for Housing Studies, which found that home prices nationwide had risen by 47 percent since pre-pandemic levels, impacting 97 of the top 100 housing markets by early 2024.
Several factors contribute to this worsening affordability situation. Beginning in 2022, as the Federal Reserve increased interest rates, mortgage rates became the primary driver of rising costs.
Additionally, a significant housing shortage, a result of years of under-construction since 2008, has further driven up prices.
“High mortgage interest rates and continually increasing home prices have pushed homeownership further out of reach for millions of potential buyers in 2024,” Harvard researchers noted. ■