A quarter of county housing markets in the United States were less affordable than their historic averages in the third quarter of 2016, up from 22% in the previous quarter, the latest data shows.
This was also an increase of 19% year on year and the highest since the third quarter of 2009 when 47% of markets were less affordable than their historic affordability averages, the index from ATTOM Data Solutions shows.
The affordability index is 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.
Out of the 414 counties analysed in the report 101 counties had an affordability index below 100 in the third quarter of 2016, meaning that buying a median priced home in that county was less affordable than the historic average for that county going back to the first quarter of 2005.
Counties less affordable than their historic averages included Harris County in Houston, Kings County in Brooklyn, New York, Dallas County, Bexar County in San Antonio, and Alameda County in California in the San Francisco metro area.
‘Affordability is always a challenge for buyers and with the recent appreciation we have been experiencing we are seeing a gap in the entry level market that in past markets was met by attached dwellings or condos,’ said Greg Smith, owner/broker at RE/MAX Alliance, covering the Denver market where all five counties included in the report were less affordable than their historic norms.
Smith noted that the state’s condo defect law has affected new construction of condos during the housing recovery. ‘As a result of builder’s risk and some predatory practices of attorneys, builders do not feel comfortable providing this product and as a result many first time buyers are finding it hard to enter the market, which can cause some ripples across the market as a whole,’ he explained.
Counties still affordable by historic standards included Los Angeles County, Cook County in Chicago, Maricopa County in Phoenix in Arizona, Miami-Dade County in Florida and Queens County in New York.
‘The improving affordability trend we noted in our second quarter report reversed course in the third quarter as home price appreciation accelerated in the majority of markets and wage growth slowed in the majority of local markets as well as nationwide, where average weekly wages declined in the first quarter of this year following 13 consecutive quarters with year on year increases,’ said Daren Blomquist, senior vice president at ATTOM Data Solutions.
The report says that this unhealthy combination resulted in worsening affordability in 63% of markets despite mortgage rates that are down 45 basis points from a year ago. ‘Some silver lining in this report is that affordability actually improved in some of the highest priced markets that have been bastions of bad affordability, mostly the result of annual home price appreciation slowing to low single-digit percentages in those markets,’ Blomquist pointed out.
‘This is an indication that home prices are finally responding to affordability constraints, a modicum of good news for prospective buyers who have been priced out of those high-priced markets,’ he added.
The data also shows that affordability improved in 37% or 153 counties compared to a year ago, including the high priced markets of Marin County in San Francisco Bay, up by 1%, up by 3% in Santa Clara County in San Jose) up by 5% in Kings County in Brooklyn New York, and also up by 5% in Arlington County in Virginia.
Affordability worsened in 261 or 63% of counties year on year, with a fall of 2% in Los Angeles County, a fall of 3% in Harris County in Houston, a fall of 3% in Maricopa County in Phoenix, a fall of 5% in Miami-Dade County in Florida and a fall of 2% in King County in Seattle.
‘While the data suggests that the counties that make up the greater Seattle area can still be considered technically ‘affordable,’ I believe that this offers a somewhat skewed perspective of what’s really taking place in our market,’ said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle housing market.
‘Seattle home prices correlate directly to commute times, and given the pervasive lack of transit infrastructure in our region, that means homes with reasonable access to the city are seeing aggressive price growth. Affordability remains an issue in the region, and that is unlikely to change in the foreseeable future,’ he added.
Annual growth in median home prices outpaced annual growth in average weekly wages in 368 of the 414 counties analysed, some 89%. That was a reversal from the trend in previous quarters, when the share of counties with home price growth outpacing wage growth dropped as low as 58% in the second quarter of 2016.
On average across the 414 counties, average wage earners need to spend 36.3% of their income to buy a median priced home, still below the historic average of 38.8%, but up from 35.9% in the previous quarter and up from 35.8% a year ago.
