Why the worst of US housing affordability may be behind us

Housing affordability deteriorated in 2022 by the most since the housing crisis and rebalancing is needed to foment healthier market dynamics. But supportive structural factors mean a major correction in house prices is unlikely, in our view.

What you will learn:

• Our US national Housing Affordability Index (HAI) rose 10bps q/q to 118 in Q4 from 108 in Q3, reaching a new historic high and meaning that prices were 18% above the borrowing capacity of median income households. Our indices for the Miami (+14bps) and New York City (+12bps) metros recorded the largest increases.
• Still, we expect affordability to improve somewhat in the next two years as lower house prices and mortgage rates outweigh the impact of the lower incomes due to the recession we expect this year.
• Downside risks to our house price forecast are modest. Supply-demand dynamics will keep a floor under house prices, and while the inventory of existing homes for sale has increased, it remains low by historical standards as would-be sellers stay on the sidelines. Most homeowners have rates below the current 30-year fixed mortgage, so have little incentive to sell.