Posted on
May 9, 2023

Drivers of Affordability

Wolf Rendall and Mason Gatewood


In this post, we’ll examine how many households can afford both the downpayment and the monthly payment required to purchase the median home in the nationwide housing market using a mix of conventional financing and government loan programs. Between down payments and mortgage payments, 59% to 65% of all households and 66% to 77% of young households are currently shut out of home ownership depending on financing strategy. However, we find that the FHA program makes the median home affordable for 34% of young households headed by someone under 35, compared to just 23% under conventional financing.

Vontive’s prior research showed increased mortgage rates were harming affordability and new home construction. From our analysis, we determined that only 35% of households could afford the monthly payments for the median home at that time. Using data from the Census Bureau, FHA, Federal Reserve, and National Association of Realtors, we show that 41% of households have enough income to qualify for a conventional mortgage at the current national median home price of $437,800, and 55% have enough savings as measured by net worth. Furthermore, while up to 74% of households have enough wealth to purchase the median home with an FHA loan, only 35% of households have enough income to cover the higher loan balance. Among young households under 35, only 23% have enough savings to qualify under a conventional loan or 50% using FHA. 

FHA and VA Loan Popularity and Demographics

Purchasing a home is the largest expense in most peoples’ lives. With home prices surging approximately 30% nationwide since 2020, this is even more true today. The down payment required to purchase a home has grown along with prices, but VA and FHA loan programs that offer reduced or no down payment are gaining in popularity.

FHA provides insurance enabling lenders to offer down payments as low as 3.5% and VA-backed loans allow lenders to waive down payments completely. Approximately 20% of VA borrowers still put some money down according to Veterans United Home Loans, the largest single originator of VA loans, to take advantage of other benefits. We estimate the average down payment to be 0.5% for VA loans. When compared to a conventional mortgage’s 20% down payment, many qualifying home buyers opt in, although they may face other drawbacks with these programs. The FHA loan accounted for 15% of all purchases in 2022, mostly by working-age buyers, while the VA Loan accounted for 9%, disproportionately by seniors, according to the National Association of Realtors' 2022 Generational Trends Report

According to its own published data, the FHA loan rose to 11.05% of purchases and 7,8% of refinances in 2020, from its pandemic lows of 10.85% and 4.35%. This recent increase reverses a decades-long decline in the program’s popularity since peaking at 28.1% and 12.8% during the Great Recession.

Loan Programs by the Numbers

Drawing on wealth distributions obtained via the Federal Reserve’s Survey of Consumer Finances (SCF), FHA loans can help address down payment affordability for some borrowers. However, even with an implied 3.5% down payment affordable to 74% of households, only 35% of households have qualifying incomes, due in part to a loan balance that is $72,237 greater  than with a conventional conforming loan for the same house.

This problem is even starker for individuals under 35, who have a median wealth of just $15,200, according to the SCF. Of these younger households, only 23% have at least $87,560 in household wealth, the down payment required to purchase the median home under a conventional loan, or 50% with an FHA loan.

Sources of Savings Complicate Down Payment Affordability

Our analysis is drawn from total wealth, however according to NAR 61% of buyers cite savings as their primary source of down payment funds. The 39% of borrowers drawing on funds from the sale of their primary home, gifts, sales of stock, loans or disbursements from their retirement, and other sources of their down payment complicate the affordability picture.

Retirement accounts are responsible for 36.2% of household wealth while home equity accounts for 27.8%, according to the Census Bureau’s Household Wealth Report released in 2022. First time home buyers and young households, who lack the funding options offered by retirement savings and prior home sales are disproportionately affected by rapid home price appreciation since 2020. The median wealth for individuals under age 35 was $15,200 in 2022, down from $22,000 in 2020, and well below the $93,540 required for a 20% down payment on the median home in 2023.

Pandemic-Era Savings Stalling

During the pandemic, the household savings rate hit an all time high, but fell to 3% in August 2022, rising to 5% in March 2023. This remains well below the 7% observed in 2010 to 2020. If home prices continue to rise faster than incomes and savings, as they did in 2022, fewer households will be able to make larger down payments, as their savings lag further behind. The larger loan balances lead to higher monthly costs, which is already the most constraining factor for most people. 

Recent Improvements and Forecasts

Recent price improvements have brightened the affordability outlook for many borrowers. The nationwide median home price fell from $479,500 to $436,800 in Q1 2023 (8.9%), according to data from the Federal Reserve. This ends a 2.5 year streak of rapid, steady increases. However, we expect ongoing volatility due to the low volume of sales nationwide, which increases the impact of seasonality and regional effects. Some areas of the US that boomed during the pandemic are now contracting, impacting the makeup of transactions, and distorting the view of many competitive, appreciating markets such as the Northeast, Southern California, and the Midwest.

Young borrowers at the peak in 2022, experienced affordability as low as 22% - 34%, depending on their borrowing strategy. As this is a traditional period of family formation, many of these young households need the greater stability offered by homeownership. Sadly, prices at the recent peak shut out ¾ of them.

We expect borrowers to continue to benefit from this easing trend in the short run, particularly if borrowers, sellers, and lenders are prepared to utilize FHA loans. However, new analysis from Redfin analysis suggests that a lack of new listings puts a floor on further price improvement for buyers. Buyers may need to wait for the arrival of new construction homes to take full advantage of this trend while existing homes remain off-market. Data from the Census Bureau shows new housing units completed are up 12.9% year-on-year as of March. In contrast, units under construction fell -11.8% year-on-year, peaking in August 2022. Projects from that peak period are in line for delivery through the end of this year.


For a simple heuristic to understand the true proportion of households that are in the market, we take the minimum percentage of households that can afford both the down payment and monthly payment between FHA and Conventional loans. This is a nationwide metric and does not account for the distribution of affluent households across more or less expensive markets or other factors that may limit program participation.

For all 131 million US households, we find that 35% of households could afford both the down payment and mortgage under an FHA loan, while 41% could afford using a conventional mortgage at the prevailing median price. Income remains the leading financial barrier among strategies, leading us to conclude that low down payment programs are not effectively removing barriers broadly among Americans.

For households headed by someone under age 35, representing 21% of all US households, we find that only 23% can afford both the monthly payment and down payment with a conventional loan, compared to 34% with an FHA loan. Down payment affordability severely restricts younger borrowers attempting to use conventional mortgages, while income restricts home buying for FHA borrowers. The 11-point improvement for this group compared to the broader 6-point decrease indicates that FHA loans are effectively allowing more young Americans to purchase homes and benefiting them in a targeted way.

We expect FHA loans to become much more popular in coming months as savings continue to decline and low down payment options become the most practical way for young borrowers to participate in the housing market. We also expect purchases of new homes to grow much faster than existing homes this year.

We look forward to clarifying these home buying trends within metro areas in further analyses. While our comparison of median home prices and income percentiles is robust to outliers, we suspect that high-income young people in large metro areas are inflating the overall income and savings numbers for their group, but face even less affordable markets in the areas younger people tend to cluster in. Our result that 23% - 34% of young households can afford the median home is therefore likely to overestimate their access to home ownership.


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