According to the latest research from online real estate marketplace Point2, which examined census data for the 100 largest U.S. cities, changes in the average prices of affordable homes were analyzed from November 2022 to November 2023.
This research defines "affordable" housing as a 20% down payment, a 30-year fixed-rate mortgage, and monthly payments below 30% of income.
After considering different mortgage interest rates, Point2 found that the purchasing power of homebuyers in several high-priced real estate markets has increased, partly due to income growth.
Topping the list is Irvine, California, where homebuyers can, on average, afford a $498,161 home by 2023, an increase of $53,051 from the previous year.
Following closely is another expensive city in California, San Francisco, ranking second nationally, with affordability increasing by $42,354.
Rounding out the top five are Anchorage, Alaska ($39,819), Washington, D.C. ($35,612), and Jersey City, New Jersey ($34,851).
Other cities experiencing increased purchasing power include Honolulu ($34,052), Las Vegas ($26,849), Oakland, California ($25,993), Boston ($11,478), Aurora, Colorado ($9,225), San Jose, California ($8,758), and Austin, Texas ($8,225).
However, there are cities where purchasing power has decreased. For instance, in Lincoln, Nebraska, a homebuyer who could afford a $229,706 home in 2022 can only afford a $191,053 home in 2023.
Following closely is Tulsa, Oklahoma, where homebuyer purchasing power has decreased by an average of $34,958, followed by Oklahoma City (-$30,751), Kansas City, Missouri (-$29,694), and Wichita, Kansas (-$29,290).
Cities losing purchasing power also include Lubbock, Texas (-$20,588), Raleigh, North Carolina (-$16,639), St. Louis (-$14,033), Cleveland (-$7,956), Indianapolis (-$7,601), Louisville (-$4,717), Denver (-$4,642), Chicago (-$4,059), New Orleans (-$3,939), Portland, Oregon (-$3,702), Tampa, Florida (-$1,010), and Albuquerque, New Mexico (-$142).
Point2's research also found a decrease in affordability based on square footage. Homebuyers in some cities have essentially lost an average-sized bedroom (132 square feet) or more.
Researchers note that because of variations in the relationship between median income, home prices, and price per square foot across different cities, potential buyers losing the most purchasing power may not necessarily lose the most square footage.
It's worth noting that despite the impact of rising mortgage interest rates on the real estate market in 2023, sales activity is expected to move in the right direction in 2024. According to forecasts from the National Association of Realtors (NAR), the average mortgage interest rate in 2024 is expected to be 6.3%.
