New Data Show Growing Problem for Home Buyers and Builders

The American dream of owning a home continues to become more of a pipedream, according to new data from two sources. But bad news on that front might be good news in multifamily, single-family rental, and build-to-rent.

According to the National Association of Realtors and its Housing Affordability Index, housing affordability fell month over month in January. Compared to December, monthly mortgage payments increased by 3.4% while median family income was up only 0.5%.

In a year-over-year look, the news is worse. “Compared to one year ago, affordability declined in January as the median family income fell by 4.5% while the monthly mortgage payment increased 27.0%,” the NAR analysis said. “The effective 30-year fixed mortgage rate was 3.51% this January compared to 2.79% one year ago, and the median existing-home sales price rose 15.9% from one year ago.”

Even in what is seen as a worker’s market, with competition for help pushing up wages, pay doesn’t keep up with inflation. The average hourly figure for individual workers dropped 2.6% nationally between February 2021 and February 2022. That’s a sharp increase from the 1.7% drop from January 2021 to January 2022. Given that there is a lot of top-weighting in wages numbers because of upper-end pay rising faster, the figures likely understate the actual impact for millions of Americans.

The NAR noted that families with at least a median income should, in theory, be able to afford a median-priced home, assuming a 20% down payment, 30-year mortgage, and no more than 25% of family income going to mortgage payments.

However, “[f]irst-time buyers typically spent 25.6% of their family income on mortgage payments, making a home purchase unaffordable.”

Meanwhile, the National Association of Homebuilders estimated that 87.5 million households couldn’t afford a medium-priced new home and 36 million households couldn’t afford a $150,000 home, with the minimum income needed at $36,074.

The dynamics force further distortions in the market. According to sources that have spoken to GlobeSt.com over time, developers are finding themselves pushed to building more expensive homes to compensate for higher costs of land, materials, labor, and other costs. As prices go higher, even more people are pushed out of the market, meaning even more focus on higher-end properties.

While this is bad for those catering to buyers, the same conditions make rental an only option for millions of families. That should further increase demand for multifamily apartments, single-family rentals, and build-to-rent communities.