December 2024 marked the 33rd consecutive month of the new home affordability crisis in the U.S.
Starting in April 2022, the monthly mortgage payment for the median new home purchased in each month has exceeded 36% of the income earned by the typical U.S. household in each month since. For December 2024, that monthly mortgage payment would consume 39.7% of the income of a household at the exact middle of the spectrum of income in the United States. That's worse than the revised figure of 38.2% that applied in November 2024, which was among the lowest percentages recorded for this affordability measure since the crisis began.
This outcome was ensured by an increase in the median sale price of new homes sold in the U.S. during December 2024, which rose to an initial estimate of $427,000 from November's revised $402,000. This rise more than offset a small decrease in the average conventional 30-year fixed rate mortgage interest rate to 6.65% during December 2024.
It also puts the relative affordability of a new home above the 36% of pre-tax income that marks the upper threshold of household income that mortgage lenders use to determine whether they will lend to a household that has no other debt. For households that do have other debt, it is well elevated above the 28% of household income that lenders set as a maximum for determining how much mortgage they can afford.
The latest update of our chart tracks the changing relative affordability of the typical new home sold in the U.S. is for the typical American household with respect to these mortgage lender thresholds from January 2000 through December 2024.
These figures assume a zero-percent down payment, which we use to standardize the measurement of relative affordability among all households. This analytical approach is justified by two factors:
- Several government programs guarantee full financing with zero-percent down payments. Also, there are more than 1,600 government programs that can lower prospective homebuyers' down payments to make their mortgage payments more affordable.
- Homebuyers who tap their savings or sell assets to cover their down payments face very real opportunity costs in doing so, which they are giving up over the entire term of their mortgage to make their mortgage payments more affordable. Because of that situation, it's reasonable to account for those costs in their mortgage by assuming a zero percent down payment. They are, after all, giving up the amount of their down payment and all the interest income they could otherwise have earned from it over the life of the mortgage.
The affordability crisis for new homes has its origin in the high inflation that was unleashed by the Biden-Harris administration's policies in March 2021.
References
U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 27 January 2025.
U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 27 January 2025.
Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 2 February 2025. 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 calendar month.
Image Credit: Microsoft Copilot Designer. Prompt: "A picture of a new home with a for sale sign in front of it. The sign has the price "$427,000" on it." We had to tweak the results to get closer to what we were aiming at.
Labels: personal finance, real estate
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