Buying a house is the hardest it's been in nearly 30 years

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Housing affordability in the United States is at its lowest level since 1996.

This line represents the standard for determining whether the typical US household can afford to pay the mortgage when purchasing a home.

If housing affordability is higher than this line, then the median US household that takes out a 30-year mortgage for a typical-priced home has enough income to pay at least 100% per month.

If affordability is below this line, the average American household will only be able to cover a small portion of any new monthly payment.

According to Goldman Sachs Housing Affordability Index, the affordability of housing at the national level was above the line for 13 years -- from December 2008 until January 2022.

Housing affordability in the US began to fall in 2021. It fell below 100 in February 2022, for the first in over 10 years. Then, it reached a new record low in October of 2022.

Even though affordability has improved in recent months, as home prices have cooled down and mortgage rates have dropped by a bit, current levels remain among the lowest that we've ever seen. They are even lower than the years prior to the Great Recession of the 2000s.

Goldman Sachs' latest data shows that in March, the average American household could not afford to pay for a full mortgage. According to their projections, the United States will not return to a place where the average American can afford a full mortgage payment until at least 2025.

The Goldman Sachs US Housing Affordability Index takes into account three factors: household income, housing costs and mortgage rates. The recent rise in mortgage rates and the strong growth of home prices in the last few years have not been enough to compensate for the rising incomes.

Lotfi Karaoui, Goldman Sachs' chief credit strategist, said: 'You face the most significant, and abrupt, increase in mortgage interest rates in decades.'

Mortgage rates rise, but affordability falls

In the past, mortgage rates have historically had an inverse correlation with US housing affordability -- as rates rise, housing becomes more affordable. As an example, affordability reached its peak in late 2012, when mortgage rates dropped in the aftermath of the US Great Recession. Then, it fell again in 2013, as rates started to rise.

Mortgage rates fell steadily in the years before the pandemic, and continued to fall through 2020. This led to a higher level of affordability (2). In late 2021 mortgage rates started to rise, reaching 7.08% by October -- the month when affordability reached a new low -- and then again in November according to Freddie Mac's average weekly rates (3).

Karoui, a CNN commentator, said that 'housing is the most sensitive sector to rate changes in the economy'. The first thing you will feel is the impact of rising interest rates in the housing sector.

Renting is cheaper than buying

Renting is much more affordable now than buying, despite the high mortgage rates. Rent is about a quarter the average American's income per month, but mortgage payments are now more than a 3rd.

Renting was cheaper than buying during most of the 2000s. Until recently, purchasing was more affordable than renting since the Great Recession.

Karoui explained that while there are a variety of affordable metro areas in the United States, they follow the same national trend, as mortgage rates for new buyers are the same across the board.

Since 2005-07, when the housing crisis began, this is the first time that the proportion of expensive US metro regions is greater than the affordable ones. Housing was affordable from 2009 to 2021 in at least 70 percent of the 340 metros tracked by Goldman Sachs. In October, the number of metro areas that were unaffordable peaked just as affordability nationwide reached its lowest point. In March, less than half of the 340 metros were deemed affordable.

Karoui, CNN.com: "Most of the difference between metros is due to home prices."

He said that there could be differences in the amount of disposable income. Some states do better than others. "But the most important factor is how much you have appreciated in price in the previous year, and that's what really makes it simple."

California, for example, has five of the most expensive metro areas in America, despite having some of the highest home values in the nation. Goldman Sachs data shows that all of its metros were below the national rate for affordability in March.

California, in particular, has the largest concentration of areas with less affordable housing. Florida and the majority of East Coast metros are also notable for having less affordable housing. The Midwest and some parts of the South are more affordable.

Goldman Sachs data shows that all metro areas except one in the West are considered unaffordable. Metro areas in the Northeast are mostly split but more of them were considered expensive than affordable. The Midwest has 70 metro areas in which the average American household can afford to pay the full monthly mortgage payment.

Illinois is the most affordable state in the Midwest. Danville and Decatur, two former industrial centers in central Illinois, are the two most affordable metros in the United States. All of Illinois' metro regions were more affordable in March than the national average, including Chicago.

The majority of the 25 biggest decreases in affordability from December 2021 - just after mortgage rates started to rise - and December 2022 are in Florida, Georgia, and the Carolinas.

Goldman Sachs has indexed every metro area in the United States that experienced a drop in affordability during that time. Three of the top five metro areas for affordability dropped the most in Florida. These included Ocala and Naples, as well as the Miami area.

Explore the data

Compare the 340 metro regions to the national average or to other metro areas using the search bar at the top of this chart. You can also compare metro areas within a particular state by choosing a state in the dropdown menu.

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