The US housing market is so expensive that incomes would have to spike 55% for it to be considered affordable, industry exec says

To hit pre-pandemic affordability, either US incomes must spike, home prices have to crash 35%, or mortgage rates must come down.

• The housing market is so unaffordable that only three extreme scenarios would return it to pre-pandemic affordability. 
• US incomes would have to spike 55% to consider the current market affordable, an industry executive said.
• Other scenarios would have to see home prices crash 35% or mortgage rates drop four percentage points. 

The current housing market is so expensive that one of three extreme scenarios would have to play out for it to return to pre-pandemic affordability, according to Andy Walden, ICE vice president of enterprise research.

He told CNBC in an interview this week that one of those hypotheticals would be a sharp spike in US incomes. 

"If you look at home affordability itself, and what it would take to normalize the market today, it's a 35% correction in price, or a 4% decline in rates, or a 55% growth in income," Walden said. "Some combination of those. Those are massive movements we're talking about, and none of them are going to happen in a vacuum, and none of those one single factors are going to make the move."

He said there's a large potential for movement, but the lack of inventory is keeping prices elevated when they should be pulling back amid rising rates. Walden added that the latest housing data was "red-hot" coming into August, and buying power remains down about 6%. 

"Demand has hit its lowest point during the pandemic over the last three weeks, certainly constraining the market and affordability and its lowest level in 40 years," Walden said. 

Higher mortgage rates paired with soaring prices have crushed affordability in the US, with rates on the 30-year fixed mortgage hovering near two-decade highs and inching closer to 8%. 

For buyers putting a 20% down payment on a $400,000 home, the monthly mortgage is about $930 more expensive per payment compared to pandemic lows, CNBC data said. Last week, the number of people applying for mortgages plunged to the lowest level since 1996, the MBA's latest survey showed.

"That same interest rate lever that's driving down demand, it's pulling down supply," Walden said. "We're actually 8% below where we were last year in terms of supply. 70% of markets are down year-to-date on the seasonally adjusted basis. It is causing that gridlock in the market."