Economists' Outlook

Housing stats and analysis from NAR's research experts.

Housing Affordability Weakens in June as Home Prices Ascend

At the national level, housing affordability declined in June compared to a year ago according to NAR's Housing Affordability Index. Affordability declined in June compared to one year ago as the median family incomes rose by 2.3%, while the monthly mortgage payment increased 21.5%. The effective 30-year fixed mortgage rate1 was 3.03% this June compared to 3.22% one year ago, but the median existing-home sales price rose 24.4% from one year ago.

Compared to the prior month, affordability also worsened as the monthly mortgage payment rose by 4.1% while the median family income rose by 0.1%.

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

As of June 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 account for 25% of family income.2 The most affordable region was the Midwest, with an index value of 189.7 (median family income of $86,883 with the qualifying income of $45,792). The least affordable region remained the West, where the index was 113.0 (median family income of $94,666 and the qualifying income of $83,808). The South was the second most affordable region with an index of 153.4 (median family income of $80,430 and the qualifying income of $52,416) The Northeast was the second most unaffordable region with an index of 145.7 (median family income of $99,595 with a qualifying income of $68,352).

Bar chart: June Housing Affordability Index, 2021 and 2020
Bar chart: U.S. and Regional Median Family Income and Qualifying Income

Housing affordability3 declined from a year ago in all four regions. The Northeast had the biggest decline of 16.0%. The South region experienced a weakening in price growth compared to a year ago of 14.7% followed by the Midwest with a dip of 11.8%. The West had the smallest decrease of 10.9%.

Affordability is down in all four regions from last month. The Northeast had the biggest decline of 7.7% followed by the South which fell 4.5%. The Midwest region fell 3.7% followed the West region with the smallest decrease of 0.5%.

Nationally, mortgage rates were down 28 basis points from one year ago (one percentage point equals 100 basis points).

Compared to one year ago, the monthly mortgage payment rose to $1,255 from $1,033, an increase of 21.5%, The annual mortgage payment as a percentage of income inclined to 17.1% this June from 14.4% from 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 22.1% of income. Home prices in the West have reached an all-time high of $515,700. The Northeast had the second highest share at 17.2% followed by the South with their share at 16.3%. The Midwest had the lowest mortgage payment as a percentage of income at 13.2%. Mortgage payments are not burdensome if they are no more than 25% of income.4

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

Home prices are lapping incomes making it more difficult to afford to purchase a home. Multiple offers and cash offers are keeping first-time home buyers from entering the market. Mortgage rates rose slightly in June but are still historically low. Even with low rates, paying more for a home may not make financial sense. It's important for all home buyers to do their research to make informed decisions.

This week, The Mortgage Bankers Association reported an increase of 2.8% in mortgage applications from a week ago. Mortgage credit availability was down 8.5% in June which means credit was tightening. The reduction in credit availability came as a result of the Government- sponsored Enterprise (GSE) policy changes which reduced the availability of high loan to value refinance loans, impacting both conforming loans and GSE-eligible high balance loans.

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.

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 percent down payment.

2 The 25% mortgage payment to income share takes into consideration that a homeowner has other expenses such as property insurance, taxes, utilities, and maintenance, so that total housing expenses are no more than 30% of income. Housing costs are not burdensome if they account for no more than 30% of income.

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, utilities are not considered burdensome of they account for no more than 30% of income.

5 The 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.


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