Rising mortgage rates, home prices, energy bills and other ownership costs are putting homeownership further out of reach for many US households. In July, the income needed to meet the Atlanta Fed’s affordability benchmark was about 1.5 times the actual median household income. Meanwhile, the average rate on a 30-year fixed mortgage climbed to 7.4% in the week ending October 8, its highest level since 2023. The higher borrowing costs are increasing monthly payments for first-time buyers and households looking to move.
A quarterly CNBC and SurveyMonkey survey found that about one-third of renters want to own a home but believe affordability constraints may prevent them from doing so. Lower mortgage rates helped some Americans buy in recent years; rates have since risen, while housing-related expenses are taking up more of household budgets.
The income needed to meet the Atlanta Fed’s benchmark
The Atlanta Fed measures the income a household needs to keep housing costs at or below 30% of income. Its calculation includes mortgage principal and interest, property taxes, homeowners insurance, a 10% down payment and private mortgage insurance.
The income required under this measure began pulling away from actual median household income in 2021. By July this year, it stood at about 1.5 times the median. Domonic Purviance of the Atlanta Fed’s supervision and regulation department said that in the past, households with median or below-median incomes could still buy homes. Reduced affordability is now increasingly making homeownership more accessible to higher-income households.
Purviance estimated that, with home prices and mortgage rates unchanged, incomes would need to rise 46% to close the gap. He said rising mortgage rates in recent months were the main factor widening it. Because the Atlanta Fed’s latest affordability data run only through July and rates have climbed further since then, the gap between required and actual income may have grown.
Local price declines have not eased the broader squeeze
Home prices have fallen in some markets, including Austin, but Purviance said the declines have not been large enough to materially change affordability overall. He also cautioned buyers against expecting prices to return to pre-pandemic levels, saying that outcome is unlikely.
If mortgage rates were to fall below their long-term average, housing supply and demand could shift, he said. Some homeowners who have been reluctant to move because of low existing mortgage rates might become more willing to list their properties. More listings could put some downward pressure on prices, although the effect would depend on how the market responds.
New-home sales rise as sellers and builders offer concessions
Affordability pressures have not stopped all home purchases. Sales of newly built single-family homes rose from July to August, while sales of existing homes fell. Redfin Chief Economist Daryl Fairweather said some current homeowners were becoming more willing to sell, potentially giving buyers more room to negotiate.
Redfin data show that nearly 20% of homes listed in August had a price cut, close to the highest share in the series. The average reduction was 4.1%, however, below the 6.2% recorded at the series’ starting point in 2012. Price cuts were widespread, but their average size remained smaller than at the outset of the data series.
Fairweather also said builders have been particularly active in markets with abundant new-home supply. They may reduce prices or offer incentives such as mortgage-rate buydowns and cash at closing. These concessions can lower costs for some buyers, but mortgage rates, the income needed to qualify as affordable and total housing expenses remain central pressures on US homeownership.