U.S. Home Affordability is the worst it has been since 2008. Woah.
According to a report from ATTOM Data Solutions, Q1 2018 home affordability was at its lowest since Q3 2008. The Home Affordability Index has fallen from 102 to 95, the lowest since Q3 2008’s index of 86. This index is based on the percentage of income needed to buy a median-price home relative to historic averages. Index scores above 100 indicate more affordability, whereas scores below 100 indicate less affordability.
The data for the report was gathered from statistics on 432 U.S. counties with a combined population of more than 217 million.
“Slowing home price appreciation in the second quarter was not enough to counteract an 11% increase in mortgage rates compared to a year ago, resulting in the worst home affordability we’ve seen in nearly 10 years,” ATTOM Data Solutions Senior Vice President Daren Blomquist said in a statement.
“Meanwhile home price appreciation continued to outpace wage growth, speeding up the affordability treadmill for prospective homebuyers even without the rise in mortgage rates,” he added.
According to the report, in 64% of local U.S. markets, home prices were rising faster than wages. Since hitting rock bottom in Q1 2012, median home prices in the nation have increased by 75% while weekly average wages have only increased by 13% in the same time period. The median home price this quarter was $245,000, a 4.7% increase year-over-year, which is well above the growth in average weekly wages of 3.3%.
What this means is that for 75% of the average wage earners, median-price homes are out of range, based on a 3% down payment and a maximum front-end debt-to-income ratio of 28%. This is true of counties like Los Angeles County; Cook County (Chicago); Maricopa County (Phoenix); San Diego County; and Orange County, California.
On average, the average wage earner would have to spend 31.2% of his or her income to buy a median-priced home, but there are many counties where this percentage is much, much higher.
In the San Francisco area, the average wage earner would have to dedicate 133.2% of his or her income to buying a median-priced home. For average wage earners in Brooklyn, the number is 123.1%. Santa Cruz registers 121.5%, and in Monterey County, California, the percentage is 100.3%.
These numbers reflect a well-documented trend of affordability problems around the nation with no end in sight. Slow wage growth in a strong economy, inventory shortages and construction costs are largely to blame for the worsening state of affordability.
“The home affordability challenge is no longer just a coastal big city problem. It has spread inland to markets such as Denver, Nashville, Austin, Charlotte and Atlanta. While those markets are still less expensive and require a lower percentage of income to buy a home than the trophy coastal markets such as San Francisco, Los Angeles, Seattle, New York and Washington, D.C., they are further out of sync with their historic affordability averages than the coastal markets,” Blomquist told HousingWire.