Economists' Outlook

Housing stats and analysis from NAR's research experts.

Housing Affordability Conditions Fade in December

Compared to one year ago, affordability declined in December as the median family income rose by 4.5% while the monthly mortgage payment increased 22.5%. The effective 30-year fixed mortgage rate1 was 3.15% this December compared to 2.73% one year ago, and the median existing home sales price rose 16.1% from one year ago.

Line graph: Housing Affordability Index, December 2020 to December 2021
Line graph: Median Family Income, December 2020 to December 2021

As of December 2021, the national and regional indices were all above 100, meaning that a family with the median income had more than the income required to afford a median-priced home. The income required to afford a mortgage, or the qualifying income, is the income needed so that mortgage payments on a 30-year fixed mortgage loan with 20% down payment account for 25% of family income.2 The most affordable region was the Midwest, with an index value of 203.3 (median family income of $87,157 with the qualifying income of $42,864). The least affordable region remained the West, where the index was 112.1 (median family income of $94,964 and the qualifying income of $84,720). The South was the second most affordable region with an index of 147.3 (median family income of $80,683 and the qualifying income of $54,768). The Northeast was the second most unaffordable region with an index of 154.5 (median family income of $99,909 with a qualifying income of $64,656).

A home purchase was unaffordable for a typical first-time buyer intending to purchase a typical home. The typical mortgage payment on a 10% down payment loan on a typical starter home valued at $307,400 rose to $1,224, an increase of $198 from one year ago (starter home price of $268,300; mortgage rate of 2.81%). First-time buyers typically spent 25.6% of their family income on mortgage payments, making a home purchase unaffordable. A mortgage is affordable if the mortgage payment (principal and interest) amounts to 25% or less of the family’s income.3

Bar graph: U.S. and Regional December Housing Affordability, 2021 and 2020
Bar graph: U.S. and Regional Median Family Income and Qualifying Income

Housing affordability4 declined from a year ago in all the four regions. The South had the biggest decline of 17.8%. The Midwest region experienced a weakening in price growth compared to a year ago of 10.0%. The West fell 8.2% followed by the Northeast who had the smallest dip of 6.8%.

Affordability was only up modestly in the Midwest 0.7% from last month. The West region was flat. The Northeast was down modestly 0.4% followed by the South which had the smallest decrease of 2.3%.

Nationally, mortgage rates were 42 basis point from one year ago (one percentage point equals 100 basis points) from 2.73% to 3.5%.

Compared to one year ago, the monthly mortgage payment rose to $1,252 from $1,022, an increase of 22.5%, The annual mortgage payment as a percentage of income inclined to 17.0% this December from 14.8% a year ago due to higher home prices and only modest gains in median family incomes. Regionally, the West has the highest mortgage payment to income share at 22.3% of income. The South had the second highest share at 17.0% followed by the Northeast with their share at 16.2%. The Midwest had the lowest mortgage payment as a percentage of income at 12.3%. Mortgage payments are not burdensome if they are no more than 25% of income.5

Bar graph: U.S. and Regional Mortgage Payment as Percent of Income, 2021 and 2020
Line graph: Monthly Mortgage Payments December 2020 to December 2021

Home price growth is lapping median family incomes which is making it harder to enter the home buying process. Monthly mortgage payments are also increasing along with mortgage rates which also contribute to affordability challenges. According to the Mortgage Bankers Association this week, mortgage applications decreased 8.1% from one week earlier. New home purchase applications decreased 7.1% compared from a year ago. Housing inventory is very low, and additional supply is still needed to help moderate price growth and provide more options for those looking to buy.

What does housing affordability look like in your market? View the full data release.

The Housing Affordability Index calculation assumes a 20% down payment and a 25% qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation here.

1 Starting in May 2019, FHFA discontinued the release of several mortgage rates and only published an adjustable rate mortgage called PMMS+ based on Freddie Mac Primary Mortgage Market Survey. With these changes, NAR discontinued the release of the HAI Composite Index (based on 30-year fixed rate and ARM) and starting in May 2019 only releases the HAI based on a 30-year mortgage. NAR calculates the 30-year effective fixed rate based on Freddie Mac's 30-year fixed mortgage contract rate, 30-year fixed mortgage points and fees, and a median loan value based on the NAR median price and a 20% down payment.

2 Housing costs are burdensome if they take up more than 30% of income. The 25% share of mortgage payment to income takes into account that homeowners have additional expenses such as mortgage insurance, home insurance, taxes, and expenses for property maintenance.

3 A Home Affordability Index (HAI) value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20% more than the level of income needed pay the mortgage on a median-priced home, assuming a 20% down payment so that the monthly payment and interest will not exceed 25% of this level of income (qualifying income).

4 Total housing costs that include mortgage payment, property taxes, maintenance, insurance, and utilities are not considered burdensome if they account for no more than 30% of income.

5The Mortgage Bankers Association (MBA) that analyzes data from Ellie Mae's AllRegs® Market Clarity® business information tool. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.