Investopedia Home Affordability Index: Housing Got Even Less Affordable in May

The average median monthly housing cost is increasing for homeowners, even as the price tag on homes has declined, according to the most recent month-over-month data analyzed by Investopedia. One factor behind the trend? Rising interest rates. 

Key Takeaways

• Median monthly housing cost rose to $2,412 in May, up $16 from April
• The Investopedia Home Affordability Index slipped to 0.86
• Household income needed to afford a median-priced home rose to $8,040 per month
• The affordability gap widened to $1,094, the largest since January

The median monthly housing cost for homeowners rose $16 to $2,412 in May, up from April’s reading of $2,396, according to data calculations. Meanwhile, the housing cost-to-income ratio worsened slightly to 34.73% (from 34.66%), and Investopedia’s Home Affordability Index slipped to 0.86 (from 0.87) during that time period.

Important

The Investopedia Home Affordability Index is an ongoing look at home affordability in the United States. We collect home price, mortgage rate, income, and other data, and calculate the current housing cost-to-income ratio, which shows the percentage of household income taken up by housing costs. A reading of 1.0 or better means housing is affordable. Readings below 1.0 mean housing is unaffordable.

While the median home price for April (the latest available reading) was down slightly (to $367,711 from $368,247 in March), average monthly mortgage interest rates increased, pushing the combined cost higher. Investopedia’s monthly payment figure includes principal, interest, taxes, and insurance for a median-priced home.

Housing Affordability

Affordability consists of three parts: income, cost, and the impact of housing costs on household budgets. Homeowners whose housing cost ratio exceeds 30% of their income are considered “housing cost burdened” by the federal government. Our affordability calculations use that same ratio. 

The housing cost ratio stood at 34.4%, according to our recent analysis of trends in April compared to a month prior. This means that 34.4% of median household income was spent on housing, above the official 30% threshold for affordability.

The Investopedia Home Affordability Index shows the relationship between housing costs and income. A reading of 1.0 or better means housing is affordable. Readings below 1.0 mean housing is unaffordable.

Income Required to Make a Median-Priced Home Affordable

We also calculate the gross income required to afford a median-priced home. For May, that figure was $8,040 (up from $7,936  a month prior). In other words, a household would need to bring in $8,040 per month for median housing costs to consume 30% or less of income.

Home Affordability Gap

This measure shows the difference between median income and the income required to afford a median-priced home. Over time, the affordability gap widens and narrows as interest rates and home prices move with their markets while income rises steadily.

The home affordability gap for April was $1,094. In practical terms, a median-income household would need an extra $1,094 monthly to bring housing costs down to the 30% affordability threshold, leaving less for essentials like food, transportation, or financial goals like college or retirement.

The narrowest gap in our data was $620, recorded in September 2024 when mortgage rates hit their most recent low. On average, the gap has held at $1,152 since June 2023.

You can calculate the housing cost ratio for a home you own or want to buy. Simply divide your monthly housing payment (principal, mortgage, taxes, and insurance) by your monthly income. Prospective buyers can use our mortgage calculator to get an estimated payment for a house they want.

Housing Costs

Our affordability charts and indicators are derived from housing costs—median home price, average monthly interest rates, and additional housing costs like insurance and property taxes.

Median Home Value

Principal and interest are the most significant parts of a homeowner’s housing costs. Median home value determines both. In April, the latest data available, the median home price dipped slightly to $367,711 from $368,247 a month prior.

If you’re looking for a home, see our collection of the Best Mortgage Lenders to help you shop for a mortgage.

Average Monthly Mortgage Rates

April’s modest decline in median home price may have led to lower monthly housing costs and an improvement in affordability; however, higher mortgage interest rates that month more than offset that factor.

Important

Getting multiple quotes is essential when shopping for a home loan. In fact, according to a report by Freddie Mac, borrowers who seek at least four quotes have an average annual savings of about $600 to $1,200. Another study by the Federal Reserve Bank of Philadelphia said that seeking at least one additional rate quote results in an 18-basis-point rate reduction and a 28-point reduction for lower-income borrowers.

Other Housing Costs

We include estimates for homeowners’ insurance and property taxes that add about $450 to monthly housing costs.

Income

The last piece of the affordability puzzle is household income. For May, it stood at $6,946, $34 better than the previous month’s figure of $6,912.

Methodology

We collect data from several sources to find the housing cost ratio and generate our home affordability index.

Median Home Price

We rely on the national Zillow Home Value Index for home price data. We chose Zillow’s data because it is updated frequently and includes a range of housing types (single-family homes, condos, co-ops).

Average Mortgage Interest Rates

We average mortgage rates from Investopedia’s daily reporting based on Zillow’s rate data. The rates quoted in our sample are based on an LTV of 80% or less (a down payment of at least 20% of the home’s sales price) and an applicant credit score range of 680-739.

Other Housing Costs

We estimate the costs of property tax and homeowners’ insurance. For property tax we take an average of the property tax rates levied by each U.S. state and compiled by the Tax Foundation. For homeowners’ insurance, we use the monthly estimate from Insurify. 

Median Monthly Income

We derive median monthly income from household income from the Census Bureau’s American Consumer Survey (ACS) (2023) and Average Weekly Earnings from the Bureau of Labor Statistics (BLS). The ACS figure is the baseline; we calculate a wage inflation adjustment from the BLS’s earnings report and apply that to the ACS baseline.