Housing Affordability Report and Insurance Impacts

According to a recent report by Oxford Economics, housing affordability over the next decade will be significantly influenced by changes in household incomes, home prices, and mortgage rates. The report's Housing Affordability Index indicates that despite stable home prices and declining interest rates, a return to housing market affordability might take seven years or more.

The Index currently stands at 77.9 for the first quarter of 2026. Oxford Economics forecasts three scenarios based on future shifts in home prices and mortgage rates. The index could reach 100 by 2033 if home prices remain constant and mortgage rates decrease by approximately 50 basis points. Without rate reductions, affordability might be achieved only by 2036 if home prices remain unchanged. However, if current trends persist, the index could stay below 80 for the next decade, as projections for household incomes, home prices, and mortgage rates are taken into account.

The report highlights Oxford Economics' consideration of a broader range of cost variables, such as property taxes, homeowners insurance, and HOA fees, resulting in more conservative forecasts than models like the National Association of Realtors (NAR). Oxford Economics also uses income data from the U.S. Census Bureau’s American Community Survey, leading to lower median income calculations compared to NAR.

Increases in homeowners insurance costs impact affordability, especially in states like Florida. Without homeowners insurance, the index would rise from 77.9 to 83.5, according to Nancy Vanden Houten, the U.S. lead economist at Oxford Economics. The report also highlights a national housing shortage, estimating a deficit of over two million units. Slow new home construction and limited existing home turnover exacerbate this issue, with turnover in owner-occupied homes averaging only 4.7% over the past year.

Vanden Houten suggests that boosting turnover in existing homes could improve affordability, though it does not solve the underlying shortage. Key drivers like home prices, mortgage rates, and household incomes remain central to the index's considerations. Disparities in affordability persist, with more Americans living in areas with high home price-to-income ratios.

Despite some progress, affordability challenges continue, as highlighted by reports from NAR and Realtor.com. Mark Fleming, chief economist at First American, notes improvements in affordability in many large markets. However, financial market shifts, such as recent increases in mortgage rates, pose risks to sustained gains in housing affordability.