Housing affordability falls to lowest level since 2008

by Liz Hughes

Housing affordability fell to its lowest level since 2008 in October as home prices rose 19.6% from last year, according to the October 2021 First American Real House Price Index.

First American chief economist Mark Fleming said two of the three key drivers of the RHPI swung in favor of reduced affordability compared to last year. 

“Higher mortgage rates and record year-over-year nominal house price growth triggered a nearly 20% jump in the RHPI (rising RHPI values indicate declining affordability),” he said in a press release. “The soaring nominal house prices and uptick in mortgage rates swamped any affordability gains from the 3.6% yearly increase in household income. Since we know real estate is local, house-buying power and nominal house price gains vary by city, begging the question, where is affordability declining the most?”

Fleming said affordability fell from last year in all the markets RHPI tracks. Five had the greatest year-over-year decline in affordability: Phoenix (33.7%), Charlotte, North Carolina (32.3%), Tampa, Florida (30.9%), Jacksonville, Florida (29.3%) and Memphis, Tennessee (27.5%).

These declines will have homebuyers pulling back which could prompt fewer bidding wars and moderate prices, Fleming said. 

Mortgage rates also rose in October, increasing 0.2% compared to last year, which reduces affordability, Fleming said. 

“Higher mortgage rates decrease affordability equally in each market as mortgage rates are generally similar across the country,” he said. “However, household income growth and nominal house prices vary by market, creating the market-level variance in affordability. Faster nominal house price appreciation can erode, or even eliminate, the boost in affordability from higher household income.

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