The affordable housing crisis has been ongoing since the Great Recession. Households across the U.S. are continuously faced with untenable housing costs, and recent statistics from the National Association of Home Builders show that this state of affordability is only worsening. Over 96 million American households have been priced out of the market in 2023. This is in part due to soaring house prices and high-interest rates.
Although buying a median-priced home of $425,786 isn’t attainable for nearly three-quarters of U.S. households, building a house isn’t a viable option for most either, since the average cost to build a single-family home in the U.S. is currently $392,241.
For a better overview of the state of U.S. housing affordability in 2023, we have compared statistics from previous years, analyzed state-to-state data, and asked industry experts for their thoughts on the issue. We find out how people are adapting to the current situation and how lower interest rates and decreasing rental costs may lead to housing becoming more affordable before the year is out.
The Number of Households Who Can't Afford a Home Increased by 195% Over the Last 5 Years
Taking data from NAHB reports, we calculated the percentage increase of households who cannot afford to buy a median-price home in the U.S. from 2019 to 2023. The number of households who can no longer afford a median price home has now surpassed 96.5 million, resulting in a growth of 195.4% since 2019, and this increase is showing no signs of slowing down.
This priced-out calculation considers a 10% down payment and a 30-year fixed-rate mortgage at an interest rate of 6.25%, which is 2.75% higher than last year’s rate. From these calculations, it’s estimated that buyers would pay $70,603 more for a home today than they would have 5 years ago. What’s more, if mortgage rates were to rise to 6.5%, another 1.2 million households would be priced out of the market. 140,436 households would fail to afford a home if house prices were to increase by just $1,000.
Over 80% of Households Are Unable to Afford a Median Price Home in 16 States
According to the data collected, it’s estimated that households in 49 states would need a six-figure income to be able to afford a median-priced home in 2023. Over 90% of households in the state of Massachusetts, Rhode Island, and Hawaii are unable to afford a new median-priced home and would need an annual income of over $250,000 to qualify for a mortgage.
As median household income in the U.S. remains relatively flat, the rising cost of housing has continued to outpace home buyers’ earnings. With housing affordability having declined, somewhat of a shift is predicted for 2023. “It is expected that market prices will stabilize,” says Malinda Koncar, Realtor at Berkshire Hathaway HomeServices. “However, we are still in a housing shortage making now an unprecedented & expensive time to buy a home.”
What Could This Mean for the Housing Industry and Wannabe Homeowners?
The current state of affordability will mean the housing industry will likely see more renters than homeowners this year. According to Bruce Nzerem, Director of Public Housing for the U.S. Department of Housing and Urban Development, “this will require more affordable rental units to be built using Low-Income Housing Tax Credits (LIHTC) to make rental units affordable.”
Median renting costs amounted to a historic high of $2,053 in August of 2022, but these costs may have reached a peak as prices are beginning to cool down. This decline is likely being triggered by the multi-family construction industry’s recent comeback since the pandemic, with over 370,000 rental units completed in 2022 alone. This new supply of rental units and soaring prices have led to lower demand and increased vacancy rates, potentially setting up an environment that could drive renting costs down further this year.
If rental prices continue to decline and house prices remain high, renting may be a more viable option for those who can’t afford to buy a home in 2023. What’s more, “HUD offers different programs that assist low to moderate-income households in paying rent” according to Nzerem, alleviating the burden of high rental costs further.
Will Homes Become More Affordable?
Although mortgage rates are set to drop by the end of the year, it’s unlikely that house prices will follow this trend very closely due to the high demand from buyers and lack of supply from sellers. But that’s not to say that housing affordability won’t improve, as a one-percentage-point decline in mortgage rates is equivalent to an 11% decline in home prices.
It has been said that the recent closure of SVB and Signature Bank could lower interest rates due to market concerns, and although it remains unknown what these closures will do to the housing market this year, lower interest rates could allow home buyers to either afford more than they could at the start of the year or give those who were previously priced out of the market an opportunity to return.
The current uncertainties of the financial market make it difficult to predict what is to come for the housing industry, but what’s clear is that mortgage rates are set to dictate housing affordability this year. Some experts have predicted that house prices could see a moderate decline in 2023, but if mortgage rates continue to soar, affordability will remain low.
Adapting to a Volatile Market
As households across the country struggle with the affordable housing crisis, they have had to adopt ways to deal with rising costs. “We are seeing a lot of families choosing multigenerational living by adding attached or detached units for loved ones”, says Gregg Cantor, CEO of Murray Lampert Design, Build Remodel. The number of multigenerational households has been on the rise in the U.S. for more than five decades now, and although many factors contribute to this increase, the financial aspect seems to top the reasons for adults currently living with their parents. If housing affordability remains low, it’s likely that more people will have to turn to multigenerational living arrangements due to unattainable housing costs and high mortgage rates.
Home buyers have been outnumbering home sellers, driving house prices up to unprecedented levels. Until supply matches home buyers’ demands by increasing the rate of new builds, affordability will likely continue to dwindle. “Many local governments have failed to acknowledge that their permitting processes and bureaucratic obstacles add significant cost and time delays to getting shovels in the ground”, says Sage Naumann, Communications Director at Colorado Senate Republicans. “If they are serious about tackling the affordable housing crisis, they need to streamline.”