What are the most and least affordable states to buy a home in?

Publish date: 2024-07-31

(TND) — Buying a home in the U.S. has continued to get more expensive this year as home values have climbed despite high interest rates holding back demand as fewer homes have hit the market and a supply shortage persists, creating a financial nightmare for many would-be homebuyers.

The median sales price on an existing home in the U.S. reached a record high in May at $419,300, which is the highest price ever recorded by the National Association of Realtors. It was the 11th consecutive month of year-over-year gains. Compared to last May, prices increased 5.8% from 396,500.

While it hasn’t been as rapid in 2024 with a slower market, home values have continued to appreciate due to a limited supply on the market as homeowners who bought or refinanced their mortgage during the pandemic were able to lock into interest rates of 3% or less, saving them hundreds on a monthly mortgage payment when compared to the rates available today after the Federal Reserve raised interest rates at a record pace to tame inflation.

The average on a 30-year, fixed-rate mortgage was 6.95% as of July 3, according to Freddie Mac. Investors are watching for when the Fed will cut its benchmark interest rate, which is expected to happen for the first time during its September meeting, which will help lower mortgage rates and make buying a home more affordable.

Fed chair Jerome Powell and other governors have been cautious about timing the central bank’s first interest rate decrease. They are trying to find a sweet spot between rates dropping too soon and allowing inflation to rise again with waiting too long and sending the economy into a tailspin.

“We know that reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation. At the same time, in light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face,” Powell told lawmakers at a Senate hearing on Tuesday.

Along with lower rates, housing analysts are also forecasting more homes will be put on the market this year, which will give buyers more options and reduce the upward pressure on prices.

“Both new home and pending home sales are down, causing active listings to rise. We are still expecting rates to moderately decrease in the second half of the year and given additional inventory, price growth should temper, boding well for interested homebuyers,” Freddie Mac chief economist Sam Khater said in a statement.

The main issue facing the housing and rental markets is a deep shortage of places to live despite a pandemic-era construction boom. The U.S. has not built enough to keep up with its growth in population over the years, creating more competition for a finite set of homes and pushing prices upward.

A Zillow analysts published last month found the housing shortage grew to 4.5 million homes in 2022 from 4.3 million the year prior. There is little optimism about a quick turnaround on construction with restrictive zoning laws in localities around the country and difficult economic conditions for the builders.

Elevated mortgage rates and lingering inflation that has increased construction costs have caused builder sentiment to drop recently. An index of builder sentiment kept by the National Association of Home Builders declined from 45 to 43 last month, the second straight month of declines. Any number over 50 indicates that more builders view market conditions as good than poor.

The combination of economic and financial factors weighing on the market and would-be buyers have left people in most parts of the country being unable to buy a home. An analysis from Clever Real Estate earlier this year found first-time buyers would need a household income of nearly $120,000 to afford a median-priced home and most states do not have a market that allows for many people to buy. Only four states had list prices that were affordable for the median earner.

What states are the most and least affordable to buy a home (using Zillow’s April 2024 data):

HIGHEST HOME VALUES

  • Hawaii: $996,982
  • California: $805,913
  • Washington, D.C.: $734,216
  • Massachusetts: $645,245
  • Washington: $611,215
  • Colorado: $565,996
  • New Jersey: $539,808
  • Utah: $532,610
  • Oregon: $508,948
  • New Hampshire: $496,131

    • LOWEST HOME VALUES

  • West Virginia: $163,143
  • Mississippi: $178,983
  • Louisiana: $203,195
  • Arkansas: $205,879
  • Kentucky: $207,527
  • Oklahoma: $207,715
  • Iowa: $222,018
  • Alabama: $225,448
  • Kansas: $227,532
  • Ohio: $229,381

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