New report: 2023 was least affordable year on record for housing, but ’24 is looking up

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This year is set to close out as the least affordable on record when it comes to housing affordability but experts believe some easing is on the way in 2024.

A Thursday report from real estate firm Redfin finds housing costs in some areas of the U.S. ate up over three-fourths of typical local incomes and, on average across the U.S., came in well over one-third of the national median income.

Someone making the $78,642 median U.S. income in 2023 would’ve had to spend 41.4% of their earnings on monthly housing costs if they bought the $408,806 median-priced U.S. home. That’s the highest share on record and is up from 38.7% in 2022, according to Redfin.

The least affordable markets were Anaheim and San Francisco, where homebuyers with typical local earnings would’ve needed to spend over 80% of their pay on monthly housing costs, according to the report. Detroit and Pittsburgh were the most affordable metros in the country.

Redfin analysts note that a widely accepted rule of thumb in personal finance is that people should spend no more than 30% of their income on housing, but that has become less realistic due to elevated mortgage rates and home prices.

To put that in perspective, a typical 2023 homebuyer needed to earn an annual income of at least $109,868 if they wanted to spend no more than 30% of their earnings on monthly housing payments for the median-priced home. Redfin reports that’s a record high — up 8.5% from 2022 — and is $31,226 more than the typical household makes in a year.

“A perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history,” Redfin senior economist Elijah de la Campa said in the report. “The good news is that affordability is already improving heading into the new year. Mortgage rates are coming down, more people are listing homes for sale, and there are still plenty of sidelined buyers ready to take a bite of the fresh inventory. We expect these conditions to continue to improve in 2024.”

The ratio between housing-related expenses and income has also been negatively impacted by a U.S. wage growth arc that, while robust, has fallen well behind increases in housing costs.

Redfin notes the median monthly housing payment for homebuyers in 2023 was a record $2,715, up 12.6% from 2022. Over the same period, the median household income rose just 5.2% to an estimated $78,642 — also a record high, but not high enough to offset the jump in housing costs.

For Utah, household median incomes are right around the national average but home prices have been tracking well ahead of the rest of the country. According to Redfin data, the median price for Utah homes sold in October was over $553,000.

But Redfin analysts point to some easing of housing costs as 2023 closes out and predict increased supply and falling interest rates will lead to some market softening in the coming year.

The typical homebuyer’s monthly payment was $2,575 during the four weeks ending November 26, according to Redfin tracking, down from its peak last month but still up 13% year over year. And new listings over the same period posted the biggest annual uptick in more than two years.

In 2024, Redfin predicts listings will climb further, mortgage rates will fall to about 6.6%, and prices will drop 1%.

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