The Midwest region of the United States continues to be the most affordable place for homebuyers, according to the National Association of Realtors (NAR). Home prices in Rust Belt cities, such as Chicago and Cleveland, have seen the biggest price gains for three consecutive months. Despite the price increases, the Midwest remains affordable with an affordability index measurement of 115.6 in July. This index value indicates whether an average income family can qualify for mortgage loans on a typical home in the region. The Midwest’s affordability has attracted homebuyers, especially as high home prices persist in other areas of the country.
Jeff Tucker, a senior economist at Zillow, explained that homebuyers are looking for places where they can afford to buy. Geographically, this trend is evident in cities like Cleveland and Chicago in the Midwest. In comparison, the NAR’s affordability index for the South and Northeast regions was 88.6 and 86.7, respectively, while the index for the West region was 62.8. It is worth noting that affordability has dropped across all four regions when compared to the previous year.
The annual price growth for homes in Chicago and Cleveland was 4.4% and 4%, respectively, surpassing the national average of 1% in July. These cities are considered affordable based on the 25% rule, which states that a home is affordable if households spend 25% or less of their income on mortgage payments. For example, Chicago’s median home price was $321,000, below the national average of $366,733 in the first quarter of 2023. The city also had a stronger mortgage payment-to-income ratio of 12% compared to the national average of 23.3% during the same period.
New construction has contributed to the affordability of homes in the Midwest. The number of new residential houses sold and for sale in the region increased by 24.2% over the last 12 months in August. In comparison, the national average for new construction increased by 5.8%. Homebuilders are supplying over 30% of the market, and their efforts are also driving affordability in other cities.
Despite these positive trends, there are concerns about the future of affordability. Homebuilders’ confidence has deteriorated, going from ‘good’ to ‘poor’ for the first time in five months. The level of new residential constructions also decreased by 11.3% monthly in August. Higher mortgage rates, expected to reach 7.5%, may limit builders’ ability to buy down rates and maintain affordability for homebuyers. It remains to be seen how these factors will impact the affordability of homes in the Midwest and other regions.
– National Association of Realtors (NAR)
– S&P Case Shiller Index
– US Census Bureau
– Affordability index: A measurement that determines whether an average income family can qualify for mortgage loans on a typical home in a specific region. A value below 100 indicates that the typical family cannot afford a median priced home.
– Rust Belt: A term used to describe a region in the northeastern and Midwestern United States, known for its heavy industry and declining manufacturing sector. The term “rust” refers to the rusting industrial infrastructure that remains in these cities.
– Mortgage payment-to-income ratio: The ratio that indicates the percentage of a person or household’s monthly income that goes towards mortgage payments. A lower ratio indicates greater affordability.