The reduction in new home sale prices in April 2023 combined with a small reduction in mortgage rates to boost their affordability. That result however is relative, because home prices remain well elevated above what the typical American household income can afford.
After increasing to 6.5% in March 2023, the average interest rate on a 30-year conventional mortgage dipped back to 6.3% in April. New home prices also decreased, with the median sale price for a new home dropping an initial estimate of $420,800, which represents a decrease of $35,000 from March 2023's revised estimate and is $37,400 below the median price recorded a year earlier.
Factoring in our initial estimate for median household income in April 2023, we find the mortgage payment for a fully financed median new home sold during the month would consume 38.7% of that income. While that represents a decrease from the revised figure of 43% for March 2023, it still exceeds the 36% threshold that sets the bar to be considered "fully unaffordable" for a household earning the median income. In this case, it signals the cost of owning the typical new home sold in the U.S. during April 2023 is out of reach of the majority of American households.
The following chart shows the basic mortgage payment for the median new home sold in the U.S. as a percentage of median household income. The affordability data from October 2022 through March 2022 was revised upward because of the May 2023's income data revision.
Looking forward, mortgage rates ticked up to average 6.4% in May 2023, which will be a headwind to improving affordability. After the income data revisions, it appears median household incomes are still trending upward, which provides a tailwind. The wild card that will determine how the affordability of new homes is changing will be the sale prices of new homes, which won't be reported until the end of this month.
References
U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 23 May 2023.
U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 23 May 2023.
Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 23 May 2023. Note: Starting from December 2022, the estimated monthly mortgage rate is taken as the average of weekly 30-year conventional mortgage rates recorded during the month.
Image credit: Photo by Maria Ziegler on Unsplash.