Looking for an affordable housing market? You may not find it in the Sun Belt anymore.
As opposed to other home-price indexes that only look at changes to nominal prices, First American’s index put home-price fluctuations in context alongside changes in interest rates and household income.
“‘The challenge for home buyers in 2022 will mirror 2020 and 2021.'”
— Mark Fleming, First American’s chief economist
The latest index showed that housing affordability had fallen to the lowest level since 2008 in October, largely due to a rise in mortgage rates.
Across the markets that First American studies, Phoenix experienced the greatest decline in housing affordability. Buying a home there is now nearly 34% less affordable than it would have been a year ago.
“Robust investor activity and strong net in-migration to Phoenix has fueled soaring demand for homes against a limited supply of homes for sale,” Mark Fleming, First American’s chief economist, wrote in the report.
Here are the five markets that witnessed the greatest decline in housing affordability over the past year, as of October:
- Phoenix (33.7%)
- Charlotte, N.C. (32.3%)
- Tampa, Fla. (30.9%)
- Jacksonville, Fla. (29.3%)
- Memphis, Tenn. (27.5%)
“Higher mortgage rates decrease affordability equally in each market as mortgage rates are generally similar across the country,” Fleming added. “However, household income growth and nominal house prices vary by market, creating the market-level variance in affordability.”
At the other end of the spectrum, the markets where housing affordability worsened the least were a mix of Midwestern locales (Milwaukee, Chicago and Minneapolis) and pricey coastal cities (Boston and Washington, D.C.).
Looking to 2022, buyers shouldn’t expect much relief when it comes to rising housing costs. Mortgage rates are expected to increase, though most economists expect them to remain below 4%. Yet a limited supply of homes for sale will ensure fierce competition and continued home-price growth.
“The challenge for home buyers in 2022 will mirror 2020 and 2021 — you can’t buy what’s not for sale even if you can afford to,” Fleming wrote.