Homes are becoming less affordable in the US as prices rise and wages don’t
Houses are becoming less affordable in the United States with the latest figures showing that in the final quarter of 2016 29% were less affordable than their historic affordability averages.
This was up from 24% of markets in the previous quarter and up from 13% a year ago to the highest share since the third quarter of 2009 when 47% of markets were less affordable than their historic affordability averages.
The home affordability index from real estate data firm ATTOM Data Solutions analyses median home prices and makes calculations based on the percentage of average wages needed to make monthly house payments on a median priced home with a 30 year fixed rate and a 3% down payment, including property taxes and insurance.
An index of 100 indicates market affordability on par with historical norms while above 100 indicates more affordable than historic norms and below 100 indicates less affordable than historic norms.
Nationally the affordability index in the fourth quarter was 103, down from 108 in the previous quarter and down from 116 a year ago to the lowest level since the fourth quarter of 2008 when the national home affordability index was 102.
‘Rapid home price appreciation and tepid wage growth have combined to erode home affordability during this housing recovery and the recent uptick in mortgage rates only accelerated that trend in the fourth quarter,’ said Daren Blomquist, senior vice president at ATTOM Data Solutions.
‘The prospect of further interest rate hikes in 2017 will likely cause further deterioration of home affordability next year. Absent a strong resurgence in wage growth, that will put downward pressure on home price appreciation in many local markets,’ he added.
Out of the 447 counties analysed in the report some 130 or 29% had an affordability index below 100, indicating they are less affordable than their historic norms.
Those with the lowest affordability index in the final quarter of 2016 were Cumberland County in Tennessee, Genesee County in Michigan, Denver County in Colorado, Adams County in Colorado and Wilson County in Tennessee.
Annual home price growth outpaced annual wage growth in 81% of counties, up from 77% in the previous quarter and up from 57% a year ago.
Since bottoming out in the first quarter of 2012, the national median home price has increased 60% while average weekly wages have increased just 1% over the same period.
However, affordability has improved in 18% of markets compared to year ago but this is down from 39% of counties with improving affordability in the previous quarter and down from 26% in the fourth quarter of 2015.
On average across the 447 counties analysed, average wage earners need to spend 36.9% of their income to buy a median priced home, still below the historic average of 39.1% but up from 36.6% in the previous quarter and up from 35.2% a year ago.