Supply Surge Improving Affordability in South and West
Affordability declined for the second consecutive month in November. This was as mortgage rates drifted higher. However, the housing market remains approximately 6% more affordable compared to one year ago. Two factors contributed to the 6% annual improvement in affordability: nominal household income increased 3.6% and the average 30-year, fixed mortgage rate decreased by 0.64 percentage points compared with one year ago. Nominal house price appreciation remained stable at 3.9% in November, still reaching another record high. The increase in nominal house prices was not enough to offset the improved affordability from lower mortgage rates and higher household income.
“Despite a broad-based annual improvement in affordability in November, with 46 of the top 50 markets showing gains, regional disparities persist,” wrote Chief Economist for First American Mark Fleming
According to First American, The national housing market has been chronically undersupplied for more than a decade. When rising demand meets limited supply, all else held equal, price appreciation accelerates, and affordability declines. When mortgage rates were hovering near 3 percent in 2021, the corresponding increase in demand amid low supply contributed to double-digit house price growth. As a result, affordability on a year-over-year basis declined by an average of 11 percent in 2021. Since then, higher mortgage rates and still-rising house prices dragged affordability down further – an average of 29 percent from 2022 through 2023. However, real estate dynamics play out differently from market-to-market and affordability is improving in some markets more than others.
According to Zillow’s for-sale inventory(opens in a new tab/window) metric, which is the number of unique listings that were active at any time in each month, housing supply has increased by 19 percent nationally compared to one year ago. In fact, housing supply has increased in 49 of the top 50 markets we track on a year-over-year basis. Yet the inventory growth has not been distributed equally across the country. Using the U.S. Census Bureau’s(opens in a new tab/window) definition of the four U.S. regions, we find in the strongest supply surges in Southern and Western markets, but more muted improvements in the Northeast and Midwest.
