Where are buyers finding affordability in the US housing market?

Homebuyers turn their attention to other markets as prices creep up

Where are buyers finding affordability in the US housing market?

Affordability in the US housing market may be climbing out of reach for many prospective homeowners – but are there better opportunities for buyers in specific markets than elsewhere?

Eyewatering home prices and still-high mortgage rates are prevailing in some of the hottest markets, with recent declines in many regions’ property values failing to offset the huge increases that took place during the COVID-19 pandemic, according to First American Financial data.

Even traditionally more affordable markets – the likes of Detroit, Cincinnati, and Columbus (Ohio) – have seen house prices “continue to reach new heights,” that company’s latest price index said, although property values are still hovering below the national average in those areas.

Mississippi leads the way on housing affordability

According to Forbes, Mississippi registers as the US state with the lowest cost of living – with housing costs coming in a sizable 33.7% below the national average, at a median single-family price of $140,818.

That affordability has helped contribute to a still-strong housing market in the state. Home sales jumped by 14.7% year over year in April, Redfin said, as the number of homes listed on the market spiked 21%.

Prices actually ticked down in Mississippi in April compared with the same month last year, dipping by 2.4% in a further boost to homebuyers hoping to purchase in the state.

In May, Julene Stewart (pictured top) – a mortgage broker with MS Lending based in Madison, Mississippi – told Mortgage Professional America that the market had been progressing at a solid clip throughout the year.

That’s a phenomenon she said had been boosted by growing corporate and professional interest in the area, with top mortgage brokerages having been attuned to the trend since the beginning of this year or before.

“I think every single market looks different as it always does. I think it’s just maybe that people are feeling it a little bit more when we get in these cycles,” she said of the current high-interest-rate environment. “But for us, our area’s growing tremendously with big businesses coming in. So that’s kind of helping us offset what the overall market is doing as well.

“Those are things you can’t control in your own individual areas. But we’re extremely grateful here that we’re seeing that influx of business moving to our area, which is helping us… You have to prepare six months ago for what your business is doing now, and I feel like we just did a really good job in getting ready for that and working ahead and not behind.”

Other states with the most affordable house prices and costs of living, Forbes said, include Kansas, Alabama, Oklahoma, Georgia, Tennessee, Missouri and Iowa. Meanwhile, a research team at USA TODAY found New York, California, and Hawaii were unsurprisingly the least affordable states – joined, unexpectedly, by Louisiana.

What’s next for housing affordability in the US?

New Mortgage Bankers Association (MBA) data painted a grim picture of the affordability outlook facing would-be buyers, with the organization’s Applications Payment Index (PAPI) showing the national median mortgage payment sought by homebuyers increased from $2,201 in March to $2,256 in April.

That index gauges how new monthly mortgage payments vary relative to income, and showed that the pace of growth in average payments outstripped wage increases between April 2023 and April 2024.

While many Americans are holding out hope for lower interest rates at some point in 2024, meanwhile, a recent report by the Federal Reserve Bank of Dallas’ Alexander Richter and Xiaoqing Zhou argued rate cuts would not offer an instant tonic for current affordability woes.

A drop in the average 30-year fixed-rate mortgage in the US to 5.5% by 2025 would see a “gradual increase” in housing affordability – but with mortgage rates also indirectly correlated to home prices, lower borrowing costs would likely result in an increase in prices, the authors said.

“When monetary policy is easier, mortgage rates tend to fall, while house prices tend to rise due to higher demand,” Richter and Zhou said. “These opposing channels imply that the net effect on affordability is ambiguous and potentially the opposite of what intuition based solely on mortgage rates would suggest.”

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