The math for buying a home no longer works

The math for buying a home no longer works, per WSJ.

In 2023, homebuying became the least affordable in at least the past 11 years, according to a report by real estate company Redfin released on Thursday.

For this year, an individual earning the median income in the U.S. — $78,642 — would have needed to allocate over 40% of their income to monthly housing costs when purchasing a median-priced home, valued at around $400,000, as per Redfin's findings. This represents the highest percentage in Redfin's records dating back to 2012, indicating an almost 3% increase from the previous year.

Redfin highlighted that monthly costs for homebuyers have risen more than twice as fast as wages. The 30-year fixed mortgage rate reached 8% in October, marking the first occurrence since 2000, coupled with a decline in available house listings on the market.

For the past year, Redfin reported that a typical homebuyer needed an income of at least $109,868 to afford monthly housing payments of up to 30% of their income for a median-priced home. This record high reflects an 8.5% increase from the previous year and is $30,000 more than the typical household income.

Austin, Texas, was the only city where affordability increased in 2023, decreasing by around a 1% share according to Redfin’s analysis. Conversely, several California metros, including Anaheim, San Francisco, and San Jose, were among the most expensive. In these areas, high housing costs forced people to rent in 2023, according to Redfin.

On the other hand, Midwest metros emerged as some of the most affordable, with individuals in Detroit earning the median income spending only about 18% of their earnings on monthly housing costs.

Looking ahead to 2024, Redfin predicts a decline in mortgage rates to approximately 6.6%, and prices are expected to decrease by 1% as new listings enter the market.

Redfin Senior Economist Elijah de la Campa commented, "A perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history. The good news is that affordability is already improving heading into the new year."

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