The ongoing housing affordability crisis in the United States is showing no signs of abating, with mortgage rates currently at their highest since the early 2000s. This comes after a brief dip last year and a subsequent surge in home price growth this summer, following a steady decline from its pandemic peak. The CEO of mortgage origination firm Redfin (NASDAQ:) declared last month that the housing market has hit rock bottom due to the exorbitant borrowing costs scaring off both buyers and sellers.
The Federal Reserve’s expected easing of monetary policy should provide some relief for hopeful homebuyers. However, indications suggest that interest rates are unlikely to decline until 2024. The US central bank remains steadfast in its fight against inflation, despite the associated risk of recession.
The impact of these high mortgage rates and elevated property prices varies across US cities. According to a mid-September report by Bank of America, homes are most unaffordable in large Californian cities such as San Jose, Los Angeles, and Anaheim. Florida and Colorado also host several of the least affordable US cities, with Miami and Naples making the list alongside Denver and Boulder.
Consequently, many homeowners in these expensive cities are moving out due to financial constraints. The fastest outflows are from Los Angeles, Miami, New York, San Francisco, and Seattle. More affordable cities like Jacksonville, Florida; Columbus, Ohio; Austin and San Antonio in Texas; Tampa and Orlando in Florida are experiencing an influx of movers.
For those priced out of costly cities and squeezed by historically high mortgage rates, Bank of America has compiled a list of 10 metropolitan statistical areas (MSAs) where homes are most affordable. These include Cumberland in Maryland; Decatur, Peoria, Springfield, Bloomington in Illinois; Elmira and Binghamton in New York; Waterloo and Davenport in Iowa; and Youngstown in Ohio.
These cities were ranked based on the National Association of Realtors’ home affordability index. A score of 100 on this index indicates that families with median income can just afford a mortgage on a median-priced home in the market with a 20% down payment. A score of 120 means they have 20% more income than needed for a mortgage. The national housing affordability index score in 2022 was 103.8.
However, it’s worth noting that each of these most affordable US cities saw projected affordability decline in 2022 as inflation rose throughout the nation at its fastest rate in several decades.
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