A recent report released by the Houston Association of Realtors (HAR) on February 8 sheds light on the growing affordability crisis in the city’s housing market, driven by surging interest rates. According to the findings, just 38% of Houston households can afford a median-priced home as of the fourth quarter of 2023, forcing many potential buyers to reassess their options and turn to the rental market.
The ripple effects of this trend are evident, with high demand pushing rental rates for single-family homes to unprecedented levels. HAR’s Rental Affordability Index reveals a 2.6% year-over-year increase in the median monthly rent, soaring to $2,000 from $1,950 in 2022. To afford this median rent, Houston households now require an annual income of $80,000.
The challenges extend to prospective homebuyers, as higher interest rates have contributed to a 4.7% rise in the annual income required to purchase a median-priced home compared to the previous year. The median home price in the Houston area saw a slight decrease of 0.4% to $336,600 in the fourth quarter of 2023. However, monthly mortgage payments on a 30-year fixed-rate loan, inclusive of taxes and insurance, surged to $2,460 from $2,350 year over year. The average interest rate peaked at a 20-year high of 7.3%, marking a significant increase from 6.66% in the same period of 2022.
HAR Chair Thomas Mouton expressed concerns over the challenges posed by elevated mortgage rates, noting that many consumers have postponed their homebuying plans in favor of the rental market. Mouton remains cautiously optimistic about the market outlook, anticipating more favorable conditions for homebuyers as home prices moderate and interest rates ease in 2024.
However, the rental market also faces its share of affordability woes, with the Rental Affordability Index dipping from 48% in the fourth quarter of 2022 to 47% in 2023. The minimum annual income required to secure a rental home stands at $80,000, further underscoring the strain on Houston households amidst soaring housing costs.
