Man and woman, young couple with their pet dog in their new home, sitting by the window..


Shawn Snyder

Global Investment Strategist, J.P. Morgan Wealth Management

Homeownership is often considered a key component of the American dream – a symbol of both financial success and independence. In fact, surveys have suggested that many place owning a home above their career, family and college as a sign of prosperity. And yet, for many, that dream has not been able to become a reality.

In the third quarter of 2023, the first-time homebuyer affordability index fell to its lowest level since December 1983. Standing at 61.9, the current level of the affordability index implies that the median family income accounts for just 61.9% of the income necessary to qualify for a conventional loan covering 80% of the median-priced existing single-family home. Just one year ago, that metric stood at 97.3. Needless to say, while it was difficult for many to buy a home one year ago, the problem has become exacerbated.

This chart shows the first time homebuyer affordability index from 1983 to 3Q 2023.

This decline in affordability is a direct result of the Federal Reserve’s (Fed) campaign to bring inflation down. With the fed funds rate climbing to an upper bound of 5.5%, mortgage rates have risen in unison and have more than doubled since the end of 2021 with the average 30-year fixed mortgage currently hovering near 7.5%. As a result, the average monthly house payment for a first-time homebuyer has also doubled.

This chart shows the average monthly payment of a first time homebuyer from 1983 to 3Q 2023.

We know what you’re probably thinking: well, great, now what? But importantly, this data does not mean there is no hope. Inflation, including home prices, should continue to moderate into 2024 as growth slows, which may enable the Fed to start cutting interest rates as it seeks to normalize policy. Keep in mind, higher interest rates are a tool, not the end goal, of the Fed. As the fed funds rate comes down, mortgage rates should as well. Currently, financial markets are expecting the fed funds rate to come down by over 1% in the year ahead.

Though it may be hard to believe given the current backdrop, there are other potentially positive trends as well including increasing wages due to the tight labor market and a steady increase in the number of single-family homes being built. While the inventory of existing homes remains historically low, which has kept home prices from tumbling, the number of building permits for construction on new single-family homes has risen every single month in 2023. Though it will take time, housing supply and demand should be more aligned in the future than it is today, and that could improve affordability. According to our economists, housing affordability could return to its 1991-2016 average within two to four years if wages continue to rise while home prices remain in check and mortgage rates normalize (read “When will the crisis in U.S. housing affordability end? And how?” for a more detailed discussion).

This chart shows the number of single family homes available for sale between 1983 and September 2023.

Although National Homeowner’s Day (December 26th) is traditionally considered to be the ideal day to put an offer on a house in order to achieve optimal savings, that may not be the case this year. However, as the Roman playwright Plautus once said, “Patience is the best remedy for every trouble.” We hope he is right so that more citizens can eventually turn their American dream into a reality.

With home prices significantly outpacing broad inflation over the past decade, holding cash alone has not provided strong enough returns to combat against these inflationary forces. For those hoping to become a homeowner, they may wish to consider other types of investments that may help one’s hard-earned money to keep pace. History has shown that investing early and staying invested over the long run has the potential to help you grow your wealth meaningfully. Reach out to a J.P. Morgan professional if you’re interested in getting started or continuing your investment journey.

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