As we transition from 2023 into 2024, the real estate market continues to grapple with a combination of high home prices, rising interest rates, and evolving economic factors. The question of housing affordability remains a critical concern for prospective buyers across the United States, particularly in economically significant states such as California, Texas, New York, Florida, and Illinois.
Median Home Prices and Interest Rates: A Year-Over-Year Comparison
In 2023, median home prices across the top five states were already high, driven by increased demand and limited inventory. Here’s a breakdown of the median home prices and mortgage interest rates for 2023 and 2024:
|
State |
2023 Median Price |
2024 Median Price |
2023 Interest Rate |
2024 Interest Rate |
|
California |
$843,800 |
$888,740 |
6.90% |
6.61% |
|
Texas |
$350,000 |
$301,627 |
6.90% |
6.61% |
|
New York |
$561,600 |
$561,600 |
6.90% |
6.61% |
|
Florida |
$414,000 |
$405,500 |
6.90% |
6.61% |
|
Illinois |
$375,000 |
$375,000 |
6.90% |
6.61% |
With this data, we observe that while interest rates have slightly decreased by about 0.29%, home prices have not followed the same trend in most states. California, for example, saw a further increase in home prices, while Texas experienced a drop. These shifts indicate that although interest rates have improved, the overall impact on affordability is nuanced and not uniform across all states(PropertyCalcs)(Realtor)(Florida Realtors)(Rocket Homes).
The Impact of FHA Loans on Affordability
FHA loans are popular among first-time homebuyers, offering lower down payment options. The typical FHA loan requires a 3.5% down payment, which makes homeownership accessible to those without significant savings. Here’s a comparison of monthly mortgage payments for FHA borrowers in 2023 and 2024:
|
State |
2023 FHA Payment |
2024 FHA Payment |
|
California |
$5,362.76 |
$5,483.02 |
|
Texas |
$2,224.42 |
$1,860.87 |
|
New York |
$3,569.24 |
$3,464.75 |
|
Florida |
$2,631.17 |
$2,501.70 |
|
Illinois |
$2,383.31 |
$2,313.54 |
In most states, FHA borrowers saw slight decreases in their monthly payments due to lower interest rates. However, this decrease was not substantial enough to offset the high price points in markets like California, where home prices continued to climb, thus marginally increasing payments year over year(PropertyCalcs)(Mortgage Reports)(FHALoans.guide).
Conventional Loans and Larger Down Payments
For buyers who can afford a 20% down payment, conventional loans offer a different affordability landscape. Conventional loans typically come with fewer restrictions and lower interest rates. Here’s a comparison of mortgage payments for conventional borrowers in 2023 and 2024:
|
State |
2023 Conventional Payment |
2024 Conventional Payment |
|
California |
$4,445.81 |
$4,545.51 |
|
Texas |
$1,844.08 |
$1,542.69 |
|
New York |
$2,958.96 |
$2,872.33 |
|
Florida |
$2,181.28 |
$2,073.95 |
|
Illinois |
$1,975.80 |
$1,917.96 |
Even with a larger down payment, conventional loan borrowers are facing only marginal relief in their monthly payments. States like Texas and Florida saw the most notable reductions, but in high-demand markets such as California, the decrease in interest rates did little to make housing significantly more affordable(FRED)(HUD.gov)(FHALoans.guide).
Inflation, Salary Increases, and Affordability
While interest rates have dropped slightly, and housing prices have moderated in some regions, this does not translate into improved affordability for many buyers. The rate of inflation over the last year, combined with modest salary increases, has largely neutralized the benefits of lower interest rates. For example:
- Inflation: Inflation continues to affect the cost of living, making it harder for potential buyers to save for down payments or manage higher mortgage payments.
- Salaries: While salaries have seen some growth in 2023 and 2024, these increases are not enough to significantly improve housing affordability, particularly in high-cost markets like California and New York(Mortgage Reports)(FHALoans.guide).
The 0.29% reduction in interest rates from 2023 to 2024, though helpful, does not seem to be a catalyst for broad improvements in housing affordability. Even with the interest rate drop, the monthly mortgage payment for many FHA and conventional borrowers has changed minimally. This suggests that the overall pool of potential buyers has not expanded substantially.
Conclusion: Has Affordability Improved?
The data from 2023 to 2024 paints a complex picture of housing affordability. While interest rates have declined, home prices in key markets like California have continued to rise, effectively offsetting the benefits of lower borrowing costs. Texas and Florida saw more favorable conditions with reductions in both home prices and mortgage payments, which may offer some relief to buyers in these states.
However, the overall affordability crisis remains unresolved, as inflation and the cost of living continue to strain potential buyers’ ability to enter the housing market. The modest interest rate reductions have not significantly expanded the pool of buyers who can afford a home, particularly in states with higher home prices. Therefore, while there are some localized improvements, the broader issue of housing affordability persists into 2024(PropertyCalcs)(Realtor)(Florida Realtors)(Rocket Homes).