CHART OF THE DAY: Housing market affordability plunges to lowest level since 1985

• Housing affordability has plunged to the lowest level in nearly 40 years, according to LPL Financial.
• The drop in affordability exceeds the 2007 bubble levels as mortgage rates approach 8%.
• "Home prices have not moderated much despite high borrowing costs because housing inventory is so low," LPL said.

Our Chart of the Day is a gauge of housing market affordability that has plunged to the lowest level since 1985 in the US.

LPL Financial highlighted the National Association of Realtors' Housing Affordability Index, which takes into account median home prices, household income, and current mortgage rates. In August, it hit 91.7.

The affordability decline exceeds the drop seen during the 2007 housing bubble, when mortgage rates were elevated and home prices surged due to a prolonged wave of Americans taking on too much leverage to buy properties.

The latest sharp drop in housing affordability comes as the average 30-year fixed mortgage rate hovers around 8%, the highest in 23 years.

Elevated borrowing costs were one of the main drivers of low housing market affordability in 1985, when the 30-year fixed rate was well above 10%.

"So in this case, affordability captures the uniqueness of each period," a team of strategists at LPL said on Monday.

Affordability has been tough for prospective home buyers not only because of high mortgage rates, but also because of a supply crunch.

"Home prices have not moderated much despite high borrowing costs because housing inventory is so low," LPL said.

That's because so many homeowners locked in 30-year mortgage rates at 3%-4%, making them reluctant to give that up by putting their homes up for sale and buying a new property.

"Those who refinanced in recent years to amazingly low fixed rates have what we would call 'golden handcuffs,' keeping them content in their current homes and providing a strong disincentive to move," LPL said.