With this combination of factors, homebuyer affordability has been squeezed even more - which begs the question: just how much more expensive is it to buy a home now, after the tumultuous times that will be remembered as the COVID-19 era?
And just how severe is the affordability crunch across the U.S.? We dug into the data to find out. A closer look at the affordability challenges for homebuyers in the summer of 2023 reveals a very grim picture, especially for first-time buyers.
At the 30-year fixed-rate mortgage rate of 7.37% reported last week, plus a 20% down payment, the monthly payment for a homebuyer purchasing the average U.S. home has doubled since before the pandemic, from just under $1,200 in the summer of 2019 to $2,430 in July 2023. Wages have increased over the years, but not nearly enough to keep up with the monthly cost of homeownership.
This situation presents a serious challenge to the affordability of homebuyers, who need to pay hundreds or even thousands of dollars more per month to own a home.
Rising interest rates combined with rising home prices have hit homebuyers hard in terms of affordability." That's part of the reason we have almost no home sales.
The increase in the cost of homeownership is even more significant for lower-priced homes, often referred to as "starter homes," which puts the most pressure on first-time homebuyers, who are already faced with the burden of saving for a home without being able to benefit from the accumulation of equity.
Our research data shows that in some areas of the U.S., monthly payments on entry-level homes are triple or nearly quadruple what they were just a few years ago.
In Wichita, Kentucky, known for its strong industrial and aviation economy, monthly payments on entry-level homes have increased by a staggering 271% since 2019 - the largest percentage increase and the result of entry-level home prices rising from about $85,000 to $210,000 today, coupled with current higher mortgage rates.
Soaring monthly rents for homes catering to first-time buyers are also reflected in some of the nation's most historically affordable areas, testing a key component of America's heartland appeal: low home prices.
In Fort Wayne, Indiana, for example, first-time homebuyers here are now spending nearly $900 more per month compared to 2019. The price of these homes has skyrocketed from around $102,500 to $229,900. That means monthly payments are now about $1,270, compared to just $329 just four short years ago.
In Greensboro, North Carolina, previously affordable starter homes have risen from about $81,000 in 2019 to about $182,000, following a pattern of climbing prices that have narrowed the price gap with other neighbouring high-priced areas like Durham and Raleigh.
The situation is similar in Memphis, Tennessee, an iconic Southern city known for its musical roots and low cost of living. Monthly payments on a two-bedroom home there have risen by more than 216% since 2019. at just $56,950 in July 2019, the average home price in Memphis was one of the most affordable metropolitan areas in the country, but a starter home now costs around $120,000.
And in Killeen, Texas, monthly costs rose 199 per cent after the price of a starter home jumped from $95,175 to $189,500.
Zandi believes it could take years to return to "normal" and that there may be room for home prices to adjust due to high interest rates.
He says: "If that's the case, I think there's going to be a correction in house prices because people who have been putting off selling their homes have had to do so because of some event in their lives - whether it's a divorce, a baby, some change in their life - so we're going to see a correction in house prices." They will have to sell at a lower price.
