Home Affordability Slips Again

Housing is becoming less affordable in most U.S. markets, albeit at a slow pace, according to the latest information from property database ATTOM’s third-quarter 2021 U.S. Home Affordability Report issued Thursday.

This, despite “super low interest rates, rising wages and prices that are going through the roof,” said Todd Teta, chief product officer with ATTOM.

The typical median-priced home around the United States remains affordable to workers earning an average wage, “But affordability keeps inching in the wrong direction as the housing market boom keeps roaring ahead. That’s pushing average workers closer and closer to the point where lenders might be reluctant to give them a mortgage.”

Teta said that with much still uncertain about how the pandemic and many other forces could still affect the economy, affordability remains a crucial measure of market stability that could easily keep going in the same direction or swing back the other way.

The report showed that median-priced single-family homes are less affordable in the third quarter compared to historical averages in 75 percent of counties across the nation with enough data to analyze. That is up from 56 percent of counties in the third quarter of 2020, to the highest point in 13 years, as home prices have increased faster than wages in much of the country.

Least Affordable, Comparatively Speaking, Since 2008

The report determined affordability for average wage earners by calculating the amount of income needed to meet monthly home ownership expenses — including mortgage, property taxes and insurance — on a median-priced single-family home, assuming a 20 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics.

Compared to historical levels, median home prices in 430 of the 572 counties analyzed in Q3 2021 are less affordable than past averages. The latest number is up from 317 of the same group of counties in Q3 2020 – a downturn that developed as the median national home price shot up 18 percent to a record high of $315,500.

While major ownership costs on median-priced homes do remain within the financial means of average workers across the nation in Q3 2021, the percentage of counties where affordability is worse than historical averages has hit its highest point since the third quarter of 2008.

Trend: Housing Manageable, But Less Affordable

The latest pattern – home prices still manageable but getting less affordable – has resulted in major ownership costs on the typical home consuming 24.9 percent of the average national wage of $64,857 in the third quarter of this year. That is up from 24.3 percent in the second quarter of 2021 and 22.3 percent in the third quarter of last year. Still, the latest level is within the 28 percent standard lenders prefer for how much homeowners should spend on mortgage payments, home insurance and property taxes.

Home prices have continued rising in most of the country for the 10th straight year as a glut of home buyers chase a tight supply of homes for sale made even worse by the pandemic. The surge has come amid historically low home-mortgage rates and a desire of many households, largely unscathed financially by the crisis, to seek the relative safety of a house or condominium and space for developing work-at-home lifestyles. 

Mortgage rates below 3 percent throughout most of the past year have helped offset the impact of rising prices, but not enough to prevent the cost of home ownership from getting closer to the unaffordable benchmark.

Home prices up at least 10 percent in almost two-thirds of country

Median single-family home prices in the third quarter of 2021 are up by at least 10 percent from the third quarter of 2020 in 381, or 67 percent, of the 572 counties included in the report. Data was analyzed for counties with a population of at least 100,000 and at least 50 single-family home and condo sales in the third quarter of 2021.

Among the 43 counties with a population of at least 1 million, the biggest year-over-year gains in median prices during the third quarter of 2021 are in Middlesex County (outside Boston), MA (up 32 percent); Maricopa County (Phoenix), AZ (up 24 percent); Travis County (Austin), TX (up 23 percent); Hillsborough County (Tampa), FL (up 22 percent) and Clark County (Las Vegas), NV (up 22 percent).

Counties with a population of at least 1 million that have the smallest year-over-year median-price increases in the third quarter of 2021 are New York County (Manhattan), NY (up less than 1 percent); Fairfax County, VA (outside Washington, D.C) (up 5 percent); Santa Clara County (San Jose), CA (up 6 percent); Suffolk County, NY (eastern Long Island) (up 7 percent) and Dallas County, TX (up 7 percent).