Yahoo Finance 
Yahoo Finance Plus Why the Midwest remains one of the only affordable places for many homebuyers
Time to relocate?
Home prices in the Midwest grew again in July, but the region remains the only affordable place for buyers in the US, according to the National Association of Realtors.
Rust belt cities saw the biggest home price gain for three consecutive months in July, according to the latest S&P Case Shiller Index. Chicago and Cleveland lead again as the cities with largest real estate price gain in July, after topping the chart in May and June, data shows.
While prices are climbing, NAR’s affordability index says that the Midwest remains the only affordable region in the US with an index measurement of 115.6 in July — and a median family income of $90,146 and qualifying income of $78,000. The index value represents whether or not an average income family can qualify for mortgage loans on a typical house in the region — a value under 100 means the typical family cannot afford a median priced home in that region.
Homebuyers’ increasing interest in the Midwest suggests that the region's affordability is attracting households — as high home prices persisted and mortage rates stayed above 7% for over a month.
Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?
"I think where home shoppers are still buying and still shopping is where they can afford to," Jeff Tucker, senior economist at Zillow, told Yahoo Finance Live (video above). "And so geographically, that is looking like places in the Midwest, actually, places like Cleveland and Chicago."
NAR’s regional affordability index was followed by 88.6 in the South, 86.7 in the Northeast, and 62.8 in the West. But affordability dropped across all four regions when compared to 2022, NAR data shows.
Price gains in Midwest cities
The annual price growth for Chicago and Cleveland was 4.4% and 4%, respectively. The gains beat the national average of 1% in July, according to the S&P Case Shiller Index.
Even with the price hike in recent months, Chicago and Cleveland were considered affordable based on the 25% rule — a home is considered affordable when households spend 25% or less of the family income on mortgage payments, according to NAR.
Chicago’s median home price was $321,000, sitting below the national average of $366,733, based on NAR’s Q1 2023 data. The city also has a monthly mortgage payment to income ratio of 12% in Q1 2023, a stronger ratio than the US average of 23.3% in that same period.
The Cleveland market’s median home price was $191,400 and its mortgage to income proportion was 8.4% in Q1 2023, NAR data shows.
Inventory, inventory, inventory
New construction has contributed to the affordability of Midwest homes.
The number of new residential houses sold and for sale in the region increased by 24.2% over the last 12 months in August, US Census Bureau data shows. The national average for new construction for sale and sold increased 5.8% over the same period.
Homebuilders, currently supplying over 30% of the market, are also driving affordability in other cities.
For instance, Dallas, Texas, saw home prices drop 3.4% annually in July in the S&P Case Shiller Index. The city saw the second highest residential development activity with over 20,000 new homes built.
"How weak the home appreciation was in Dallas," Tucker said, "was one of the biggest surprises for me from the Case Shiller report."
Still, builders’ confidence eroded in August, going from "good" to "poor" for the first time in five months. The level of new residential constructions decreased 11.3% monthly in August to 1.283 million units, on a seasonally adjusted basis according to the Census Bureau data.
Up until now, many developers were buying down mortgage points to help with homebuyers’ costs, but that can change due to rates staying higher for longer. "With that kind of hawkish Fed forecast and mortgage rates rising further up to flirting with 7.5% now," Tucker said, "even builders are really getting stretched in their ability to buy down those rates to an affordable level for homebuyers right now."
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
