The Midwest’s lower home prices are offering less protection from America’s housing squeeze as mortgage rates climb to 7.40% and regional prices resist the declines appearing elsewhere. Atlanta Fed data show that by July, more than half of the monitored housing markets in and around the Midwest failed its affordability test for a median-income household.
Nearly every monitored market in that region passed the test in 2020. Indianapolis, Des Moines and Flint now fall below the threshold, illustrating how a home can remain relatively inexpensive nationally while becoming difficult for local earners to finance.
The Atlanta Fed’s Home Ownership Affordability Monitor compares the estimated cost of buying a median-priced home with median household income. It includes mortgage principal and interest, property taxes, homeowners insurance and private mortgage insurance, assuming a 10% down payment.
A market is classified as unaffordable when those ownership costs exceed 30% of income. That is a standardized measure, rather than a determination that every household is unable to buy.
In July, the model put ownership costs at approximately 38.5% of median household income in Indianapolis, 34.9% in Des Moines and 35.1% in Flint. Those burdens leave less room for food, transportation, childcare and savings.
September listing data show why the Midwest is experiencing a different market from much of the country. Realtor.com reported that regional asking prices per square foot rose 1.7% from a year earlier, while the national figure fell 1.7%.
The Midwest’s median asking price was $320,000, unchanged from a year earlier. Relative to the report’s pre-pandemic benchmark, that price was 47% higher, while asking prices per square foot were up 59.6%.
These asking-price figures describe listings, not completed sales.
Homes spent a median of 48 days on the market in the Midwest during September, compared with 61 days nationally, the fastest pace among the four major regions.
Financing has become a larger obstacle since those July affordability readings. Freddie Mac’s October 8 survey put the average 30-year fixed mortgage rate at 7.40%, up from 7.28% a week earlier and 6.30% a year earlier.
On a $300,000 mortgage amortized over 30 years, the principal-and-interest payment is approximately $2,077 a month at 7.40%, compared with $1,857 at 6.30%. That is about $220 more each month, or $2,643 a year, before taxes, insurance or other ownership expenses.
The calculation assumes the same loan amount and term. Freddie Mac’s survey describes conventional purchase borrowers with excellent credit and 20% down; an individual buyer’s rate and mortgage-insurance costs can differ.
Supply remains a constraint, even as listings improve. Realtor.com reported Midwest active inventory up 11.3% from a year earlier, but still 29.2% below its pre-pandemic benchmark. More listings therefore do not yet mean the region has returned to its earlier balance.
Existing owners also face a powerful reason to stay put. Federal Reserve Governor Michael Barr said in September that roughly half of outstanding mortgages carried rates of 4% or less. Selling can mean replacing a low-rate loan with a much more expensive one, reducing the supply of homes available to newcomers.
Barr identified insufficient construction, local land-use restrictions, building costs and shortages of skilled labor as contributors to the broader housing shortage. Expanding supply can ease price pressure, but construction takes time and conditions vary by city.
Des Moines demonstrates that variation. Realtor.com’s September report cards ranked it first among 100 large metros for a combination of affordability and homebuilding. Its affordability calculation differs from the Atlanta Fed’s, underscoring that rankings depend on financing assumptions, costs included and the period measured.
The Midwest remains cheaper than coastal regions in headline dollars. For buyers, however, the relevant question is what the full monthly bill consumes from local income.
The next test is whether additional listings and new construction can relieve that burden while mortgage rates remain elevated. September brought more choice; it did not bring a broad decline in the Midwest’s price per square foot.
JBizNews Desk | Chicago
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