Here’s Why So Many Americans Can’t Afford to Buy a House in 2022

Think you can’t afford to buy a house in 2022? You might be right. If you live in or near a major U.S. city, and your current income is close to the local average or median, a home purchase might be out of reach.

An increasing number of Americans can’t afford to buy a home these days. And there’s an obvious reason for it. House prices have skyrocketed over the past couple of years, outpacing income and wage growth by a huge margin.

As a result, housing affordability in the U.S. has fallen sharply. The chart below, along with some new data from the Pew Research Center, explain why so many people in the U.S. can’t afford to buy a house in 2022.

It’s Hard to Be a Home Buyer in 2022

It’s tough to be a home buyer in 2022. Housing inventory has sunk to record-low levels in many cities. Real estate market competition remains fierce. And mortgage rates recently surged to their highest level since 2019.

These conditions have frustrated a lot of home buyers over the past couple of years, causing some to put their homeownership plans on hold for the time being.

But there’s an even bigger challenge for U.S. home buyers in 2022 — affordability. Or rather, a lack of affordability.

The truth is that many people in the U.S. who would otherwise be excellent candidates for homeownership simply can’t afford to buy a house these days. That’s because home prices in the U.S. have risen at a much faster pace than incomes, a trend that worsened during COVID.

Here’s Why So Many Can’t Afford to Buy a House

Rapid home-price growth is the main reason why so many would-be buyers can’t afford to buy a house in 2022. Specifically, it’s the relationship between price growth and income growth.

The short version is that house values in the U.S. have soared in recent years, while incomes have remained relatively flat by comparison.

Over the past ten years or so, the median home price in the United States rose by around 30%. During that same period, incomes rose by just 11%. That’s based on data provided by the National Association of Home Builders & Wells Fargo Housing Opportunity Index.

Over the past two years (i.e., during COVID) the disparity between home price and income growth became even worse. The chart below, published a few months ago by CNBC, shows how U.S. home values and median household incomes have changed from 1965 to 2021.

home values vs incomes chart

You’ll notice that the gap between the two lines has gotten wider over the decades, and especially within the past couple of years. In fact, during much of the COVID pandemic, they moved in opposite directions. Home values went up, while the U.S. median household income actually dropped for a time.

More Buyers Facing Affordability Challenges

These trends have led to a situation where, in many housing markets, a person with average income can’t afford to buy a median- or average-priced home. In fact, the ability to purchase a house is largely limited to those at the upper end of the income bracket. It has become a luxury in many cities.

According to a March 2022 report from the Pew Research Center:

“A rising share of Americans say the availability of affordable housing is a major problem in their local community. In October 2021, about half of Americans (49%) said this was a major problem where they live, up 10 percentage points from early 2018.”

If home prices and mortgage rates continue to climb in 2022 (which is entirely possible), the percentage of Americans who can’t afford to buy a house will rise as well.

Rising Mortgage Rates Aren’t Helping Either

This week, researchers from Freddie Mac reported that the average rate for a 30-year fixed mortgage rose to 4.42%. That’s the highest average since January 2019.

It bears repeating: Mortgage rates haven’t been this high, as of late March 2022, in more than three years. This trend could cool the housing market later in 2022.

If a picture is worth a thousand words, the chart below speaks volumes. It shows the average rate for a 30-year fixed mortgage loan, going back 12 months or so. This chart is based on Freddie Mac’s weekly survey of the mortgage industry and was published on March 24.

Mortgage rates as of March 2022
Chart: Average 30-year mortgage rates | Source: Freddie Mac PMMS

As you can see, borrowing costs have risen sharply over the past couple of months. They’re still relatively low by long-term historical standards. But they’re a lot higher than they were at the start of the year. Home buyers should pay close attention to this trend.

Higher mortgage rates compound the problem of rapidly rising house prices. As we move further into 2022, we’ll likely see an increasing number of Americans who want to buy a house but can’t afford to. Interest rates will play a role in this, especially if they rise further over the coming months.

Related: How high will rates go in 2022?

For those buyers who can afford a home purchase, but are still on the fence, a sense of urgency might be warranted. The way things look right now, it seems likely that housing costs in most U.S. cities will continue to climb throughout 2022.

Disclaimer: HBI makes no claims or assertions about future housing market trends.