american dream

Housing Affordability Cratered By 29% Over Last Year

The Housing Affordability Index saw its fastest crash on record last year. That’s no surprise.

New "sold" sign over asking price for sale in front of house in residential area.

The reality of being able to realize a dream of owning a home continues to be out of reach for cash-strapped families struggle to keep a roof over their heads and food on the table. A new report shows housing affordability continues to fall — and that in 2022, not only did affordability fall by a considerable amount, it fell by the most significant drop on record.

According to the National Association of Realtors, the Housing Affordability Index has dropped by close to a third in just this year alone. The Housing Affordability Index is what’s used to measure whether a typical family can afford a mortgage loan on a typical house based on their income. It’s calculated using several components, including a monthly principal and interest payment that's not more than 25 percent of the median family monthly income nationwide.

That number tends to fluctuate, but this year, between the rising mortgage rates and surging home prices, housing affordability had the sharpest year-over-year decline on record, according to the National Association of Realtors. Affordability dropped by 29 percent this year alone, nearly a third in one 12-month cycle.

"Given 2022's affordability collapse, these [home price appreciation] levels likely are at or near the peaks for this cycle. Key question is how much and how quickly they will decline," a Bank of America analyst explained, per Axios.

This year has been challenging for anyone looking to enter the homeownership market. They've had to contend with fewer homes for sale — there was a 15.5 percent drop in home inventory numbers from February 2021 to February 2022 — plus more significant bidding wars, which were at a record high in February of this year.

However, the housing market changes have also led to a lot of stress and uncertainty for homeowners. The cost of a 30-year fixed-rate mortgage nearly doubled to approximately 5.25 percent in May compared to 2.75 percent last winter. Add in the reality that inflation rates — which have driven the cost up for everything from a carton of milk to a gallon of gas — have hit a 40-year high, and even families fortunate enough to own their homes and pay mortgages are struggling to make ends meet.

Experts have said they don't anticipate any positive changes to home affordability, mortgage rates, inflation, or home inventory numbers to happen this year. So although the Biden administration is looking at ways to help families keep a roof over their heads through the Housing Supply Action Plan, there isn't going to be an immediate fix.