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Homeownership Affordability Data Tool Offers Insights Into US Housing Markets

February 11, 2023 John Walker

A digital image of a two-story house inside a shopping cartThe homeownership rate in America has shown slow and steady gains over the past five years, reaching 66% at the end of 2022 — a level not seen since 2011. And among renters, the desire to join the ranks of homeowners remains strong. A recent survey by NerdWallet suggests that around 28 million Americans hope to purchase a home in the next 12 months.

Considering the number of new and existing home sales combined has not registered above 7 million for over a decade, there is bound to be a great number of would-be buyers who will not be able to reach their homeownership goals. Most likely, the biggest challenge holding these households back will be affordability.

To better examine housing affordability throughout the country, the Federal Reserve Bank of Atlanta has developed the Home Ownership Affordability Monitor (HOAM), an interactive tool that measures the ability of households earning a median income to afford a median-priced home. These elements are then indexed against the common HUD affordability standard, which specifies that the cost of housing should not exceed 30% of a household’s net income. The point where the cost of ownership exactly equals 30% of the median household income is given the index value of 100 in the HOAM and it is referred to as the Affordability Threshold.

What is the Data Telling Us?

This bar chart displays the Federal Reserve Bank of Atlanta's National Home Ownership Affordability Monitor (HOAM) Index over time, with data running through October 2022. The chart includes a dashed line at the value of 100, which is labeled as the Affordability Threshold. The HOAM Index measures housing affordability; a value of 100 or above indicates that the median household can afford the median-priced home, while a value below 100 indicates that the median household cannot. The key takeaways from this data chart are: 1. Sharp Decline in Affordability Current Status (October 2022): The HOAM Index dropped to 64.7, which is the lowest value visible on the chart, indicating a severe decrease in home ownership affordability across the nation. Affordability Loss: The index has dropped dramatically since its recent high point around the beginning of 2021, when it was slightly above the 100 threshold. 2. Long Period of Affordability The years between 2011 and mid-2021 saw the longest sustained period where the HOAM Index was at or above the Affordability Threshold of 100. The peak affordability occurred around 2013, when the index surpassed 110, indicating that homes were most affordable relative to household income during that time. 3. Pre- and Post-Crisis Affordability Pre-2009: Leading up to the 2008 financial crisis, home ownership was generally unaffordable, with the index remaining well below 100, fluctuating between roughly 70 and 95. Post-2021 Decline: The rapid drop in affordability in 2022 (ending at 64.7) indicates that home ownership has become significantly less affordable than it was even during the peak of the housing bubble preceding the 2008 crisis.From late 2019 through early 2021 the country enjoyed an increase in home ownership affordability and the HOAM index stood well over 100 during this time. By the end of 2022, however, affordability had taken a sharp tumble, as the index value dropped below 65.

The degree of this most recent decline in affordability was driven by three major factors — income change, interest rate change, and price change — which the HOAM nicely illustrates using a highly intuitive visualization.

This chart displays the monthly contributions of the key factors driving the year-over-year (YoY) change in the Federal Reserve Bank of Atlanta National Home Ownership Affordability Monitor (HOAM) Index from 2007 through early 2023. The chart tracks actual changes, not percent changes, and does not include factors like taxes, insurance, or PMI. The affordability change is driven by three components: Income Change, Interest Rate Change, and Price Change. The key takeaways focus on the magnitude and direction of the components, particularly in the most recent period: 1. Primary Driver of Recent Unaffordability (2022–2023) The current sharp decline in affordability is overwhelmingly driven by Interest Rate Change and Price Change. Since mid-2022, the Interest Rate Change bar has plunged deep into negative territory (up to -20.0), indicating that the rapid increase in interest rates has been the single most aggressive factor making homeownership unaffordable. Price Change has also remained significantly negative, although its drop is less extreme than the interest rate effect. 2. Income's Limited Mitigating Effect Income Change consistently remains in positive territory across the entire chart, including the 2022–2023 period. This means household incomes are generally rising, which helps affordability. However, the positive contribution from Income (around +2.0 to +4.0) is entirely overwhelmed by the large negative contributions from Interest Rates and Prices, showing that rising incomes have not been fast enough to keep pace with the cost increases. 3. Historical Component Dynamics 2011–2013 (Affordability Peak): The period of highest affordability was characterized by positive Income Change and strongly negative Price Change due to the housing market recovery. Interest Rate Change was relatively neutral or slightly positive. 2014–2016 (Mid-Cycle Volatility): This period saw large negative swings in Interest Rate Change, such as a sharp drop in late 2013/early 2014, making affordability worse. 2020–Early 2021 (Pandemic-Era Affordability): Affordability briefly improved due to slightly negative (favorable) Price Change and flat Interest Rate Change, while Income Change remained positive. This was short-lived as prices and interest rates soon turned sharply negative. Conclusion: The extreme collapse in affordability observed in 2022 and 2023 is directly attributable to the combined, aggressive negative impact of rising interest rates and rising home prices, which far outstripped any positive effect from rising incomes.Over the first half of 2021, a rapid increase in home prices cut deeply into consumers’ ability to buy a home and these rising prices remained the sole negative influence on the HOAM index well into the third quarter of 2021. During this same time period, rising incomes and accommodating lending rates managed to slightly offset the negative effects of increasing prices.

Beginning in October 2021, however, the underlying economic factors began to shift. Homeownership affordability took a big hit from rapidly increasing interest rates — greater even than the deterioration resulting from continued growth in home prices.

Beyond this national profile of affordability, the HOAM also provides insight into local markets. This allows for comparisons across different areas of the country, controlling for highly differentiated home prices and income levels.

This map displays the Federal Reserve Bank of Atlanta Metro Area Home Ownership Affordability Monitor (HOAM) Index for Metropolitan Statistical Areas (MSAs) across the US, with data updated through October 2022. The key takeaways from the geographical distribution of the HOAM Index are: 1. Widespread Unaffordability: As of October 2022, the vast majority of Metropolitan Statistical Areas across the United States have a HOAM Index score below 100. This confirms that the severe national decline in home affordability, as seen in the national index, is a widespread problem affecting most metro housing markets. 2. Coastal and Western Concentration of Unaffordability: The areas with the highest concentration of unaffordable markets are found along the Pacific Coast (California, Oregon, Washington) and throughout the Mountain West. Much of the Northeast and Southeast also show significant unaffordability, though the density of extremely low-index MSAs may be slightly less concentrated than on the West Coast. 3. Affordability Pockets (Midwest and Northeast): Affordable markets are few in number but are visibly concentrated in specific regions. The most prominent pockets of affordability are located in the Midwest (especially parts of Michigan, Indiana, and Ohio) and some areas of the Northeast (e.g., upstate New York and certain parts of Pennsylvania). These MSAs are where rising incomes have better kept pace with rising home prices and interest rates, or where housing price growth was less severe. Conclusion: The map graphically illustrates that the US housing market in late 2022 was heavily skewed toward unaffordability across most metropolitan areas, with severe conditions particularly prevalent in the West. Only a limited number of regions, primarily within the Midwest and parts of the Northeast, offered homeownership that was still considered affordable for the median household.

Two market areas where Camoin Associates has recently worked with local governments to address problems of housing affordability and availability nicely illustrate this differentiation.

Austin, Texas, was a leading metro area in terms of population growth when housing demand surged during the pandemic. The area’s affordability had largely tracked close to the national rate, but home prices soared in early 2021, reducing affordability and driving the percent of a household’s income needed to finance a median-priced home in Austin well above the US average share.

This line chart compares the Share of Income Needed to Own the Median Priced Home in the entire US with the Austin-Round Rock, TX Metro Area from 2014 through 2022. The chart includes a dashed line at 30% of income, which is defined as the Affordability Threshold. The key takeaways focus on the relative difference and acceleration of housing costs in Austin compared to the national trend: 1. Severe Loss of Affordability in Austin The Austin-Round Rock Metro Area has experienced a more extreme and rapid loss of affordability than the nation as a whole. The Austin share of income needed to own a home crossed the 50% mark in late 2022 and ended the period above it, while the US national share remained below 50%. In contrast, the US national share ended the period below 50%, having crossed the 45% mark. 2. Crossing the Affordability Threshold Both the US and Austin were considered affordable (below 30%) for most of the period between 2014 and 2020. Austin first consistently crossed the 30% affordability threshold in early 2021, beginning its dramatic ascent. The US national share followed, crossing the 30% line in mid-2021. 3. Fastest Rate of Increase (Post-2020) Starting around 2021, the slope of the line for Austin is consistently steeper than the national line, illustrating a much more accelerated increase in the share of income required. For example, between late 2020 and late 2022, the Austin share surged from approximately 30% to over 50%, representing a jump of 20+ percentage points. The US share, while also rising steeply, had a less extreme increase. Conclusion: The data clearly shows that while the entire nation experienced a severe affordability crisis after 2020, the Austin-Round Rock, TX, metro area faced an exceptional crisis, requiring the median household to spend more than 50% of their income to buy the median-priced home by late 2022. This makes homeownership in Austin significantly less accessible than the national average.The upstate New York community of Plattsburgh has experienced a similar overall decline in affordability resulting from higher interest rates. In contrast to the measures reported in Austin, however, the HOAM index only recently bumped up against the 30% Affordability Threshold. So, despite the recent run up in the index, this home buying market remains remarkably affordable, due in large part to much more muted price levels.

This line chart compares the Share of Income Needed to Own the Median Priced Home for the U.S. (National) average and the Plattsburgh, NY, Metro Area, with data running from 2014 to 2022. The chart includes a dashed line at 30% of income, which is defined as the Affordability Threshold. The key takeaways focus on the relative difference and stability of housing costs in Plattsburgh compared to the national trend: 1. Plattsburgh's Relative Affordability Homeownership in the Plattsburgh, NY, Metro Area has consistently been significantly more affordable than the US national average throughout the entire period from 2014 to October 2022. The Plattsburgh share of income needed to own a home consistently stayed below the 30% affordability threshold, fluctuating mostly between 20% and 25%. 2. Divergent Trends in Affordability Crisis While the US National Share shows a dramatic increase, crossing the 30% affordability threshold in mid-2021 and soaring to approximately 45% by late 2022, the Plattsburgh share remained relatively stable for most of the period. Although Plattsburgh did experience a sharp increase in the latter part of 2022, peaking near the 30% threshold, it did not sustain or cross it to the same degree as the nation during this time period. 3. Long-Term Stability For the entire period between 2014 and 2021, the Plattsburgh metro area maintained a low and stable share of income needed for homeownership, demonstrating its resilience to the housing market pressures experienced elsewhere. Even during the affordability crisis of 2022, Plattsburgh's housing costs, relative to income, remained similar to or better than the national average in 2018-2019, showing that affordability remains a defining characteristic of this metro area compared to the country as a whole. Conclusion: The data confirms that the Plattsburgh, NY, metro area has maintained a high level of homeownership affordability, requiring a much smaller share of income than the US national average. While the area saw a sharp uptick in costs in 2022, it successfully avoided the severe affordability crisis that gripped the national housing market.

Why is Homeownership Affordability Data Important?

Homebuyers and policymakers, alike, have witnessed declining affordability in their communities. Using the HOAM tool provides a clear sense as to how multiple factors are affecting local housing markets, and to what degree these are localized issues or part of larger national trends.

The HOAM index will also indicate when the homebuying market turns the corner and affordability begins to show improvements. Recent reports describe a softening of home prices in many parts of the country, and some market watchers are predicting significant declines over the coming year. Going forward, the HOAM index will in turn reflect the degree that this anticipated waning of home prices benefits buyers.

Once inflationary pressures ease, monetary policy will begin to ease, allowing lending rates to decrease. Hopes are that the overall economy will see a “soft landing,” while maintaining the current strong levels of employment and income growth. Should all of this come to pass, home ownership affordability will be greatly enhanced, and this will be reflected in the HOAM index.

Camoin Associates is a national leader in using research and data analysis to help communities and organizations understand where they are now and develop actionable goals designed to get them where they want to be.

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