The median sale prices of new homes sold in the U.S. rose faster than median household income in August 2021. That combination has put the median new home sale price at near record low levels of affordability.
Median household income in August 2021 is 18.4% of the median new home sale price. The record low for this measure is 18.3%, so we may soon be breaking records for unaffordability.
That's a way to measure the raw affordability of new homes, but what if we take today's near record-low mortgage rates into account? In the next chart, we've calculated the percentage of median household income that would be consumed by mortgage payments from January 2000 through August 2021.
This chart suggests the mortgage payment for a median new home is generally more affordable than in the past, which is largely attributable to falling mortgage rates over time.
If you look closely at recent trends however, a somewhat different picture is emerging. A mortgage payment for a median new home has been rising faster than median household income since the Coronavirus Recession bottomed in April 2020. That reverses the pattern from October 2018 to February 2020, when household incomes generally rose faster than new home prices, a rare period of improving relative affordability outside periods of recession. It has also occurred at a time when record low mortgage rates should be reducing the portion of household income taken up by mortgage payments.
It's not and we suspect that will be a problem going forward.