Home Affordability Hits Lowest Level in 13 Years

Can you afford a home today? It depends.

Anyone trying to purchase a home in today's market can tell you that it's no easy feat. Between limited inventory and inflated prices, buyers today are facing their share of challenges.

But it's not just that it's difficult to buy a home today -- it's also gotten more difficult, financially speaking, to own one. A household earning median wages would need to spend 32.1% of its income for mortgage payments on a median-priced home, as per the Federal Reserve Bank of Atlanta. That marks the highest percentage of income needed to swing a mortgage since November of 2008, according to the Wall Street Journal.

In fact, the percentage of income needed to cover a median mortgage payment has grown a lot this year alone. At the start of 2021, that percentage sat at 29.1%. Since then, it's risen to 32.1%.

When the Federal Reserve Bank of Atlanta calculates the cost of mortgage payments, it does account for other standing expenses like property taxes, homeowners insurance, and additional costs that may be lumped into monthly payments. Many mortgage borrowers pay their loan servicers more than what they owe for principal and interest, and their loan servicers take care of property taxes and insurance costs for them.

If you're thinking of buying a home, you may be wondering if you can afford to keep up with it. As much as we'd like to give a definitive answer, the truth is that in today's market, it's hard to know.

Follow the 30% rule

As a general rule, aim to keep your housing costs to 30% or less of your take-home pay. And by "housing costs," we're talking about the items accounted for above -- principal and interest on a mortgage, property taxes, insurance premiums, and other expenses (like PMI) that you may be liable for.

Currently, a median-income household would exceed that 30% threshold in paying for a median-priced home. That's because this year, home price growth has outpaced wage growth, making it harder for property owners to keep up.

If you're not sure whether you can afford a home, your best bet is to run some numbers with a mortgage calculator. That way, you'll get a sense of how much you might spend monthly based on factors like the price of the home you buy, your down payment, and the interest rate on your home loan.

There's some flexibility

If you generally manage to keep your non-housing expenses to a minimum (say, you don't own a car, and spend very little on non-essentials), then you may be okay to spend a touch more than 30% of your income on housing. But for the most part, there's a reason the 30% rule exists, and it's to prevent buyers from taking on too much house and struggling financially as a result. So if the homes you see for sale where you want to live are too expensive for your budget, you may need to sit tight and wait for prices to come down.

When that will happen is anyone's guess. Right now, home prices are high because housing inventory is low. If more homes hit the market, it could help property values come down. At this point, it's fair to assume we won't see a huge influx of homes hitting the market before the year is out. But things could pick up in 2022, and homes could become more affordable across the board.