Homeownership Increasingly Unaffordable in U.S.

Thu, 31 December 2020  |  housing 

Homeownership is increasingly unaffordable in the U.S. according to a new report from ATTOM Data Solutions. ATTOM's fourth-quarter 2020 U.S. Home Affordability Report, shows median home prices of single-family homes and condos in the fourth quarter of 2020 were less affordable than historical averages in 55 percent of counties with enough data to analyze, up from 43 percent a year ago and 33 percent three years ago. Yet rising wages and falling mortgage rates still helped keep median home prices close to affordable for average wage earners across the country.

The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes and insurance — on a median-priced home, assuming a $100,000 loan 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 (see full methodology below, which has changed from earlier reports to account for higher down payments and two-worker households).

Compared to historical levels, 275 of the 499 counties analyzed in the fourth quarter of 2020, or 55 percent, were less affordable than past averages, up from 217 of the same group of counties in the fourth quarter of 2019 and 164 in the fourth quarter of 2017. The fallback came as continued spikes in median home prices of at least 10 percent over the past year in most of the country outpaced the impact of increasing wages and declining mortgage rates to historic lows. Those price increases occurred as the U.S. housing market kept booming despite economic troubles related to the ongoing Coronavirus pandemic.

With prices rising faster than earnings, major home-ownership expenses consumed 29.6 percent of the average wage across the nation during the fourth quarter of 2020. That figure was up from 26.4 percent in the fourth quarter of 2019 and was above the 28 percent benchmark lenders prefer for how much homeowners should spend on those major expenses – mortgage payments, insurance and property taxes. Those costs exceeded the benchmark in 59 percent of the counties included in the fourth-quarter 2020 report.

"Owning a home in the United States slipped into the unaffordable zone for average workers across the nation in the fourth quarter as the numbers continued a year-long slide in the wrong direction. The latest housing market data shows the average worker unable to meet the 28 percent affordability guideline used by lenders," said Todd Teta, chief product officer with ATTOM Data Solutions. "That's happened as home prices have continued rising throughout 2020 and the housing market has remained remarkably resilient in the face of the brutal economic fallout from the Coronavirus pandemic. The future remains wholly uncertain and affordability could swing back into positive territory. But for now, things are going in the wrong direction for buyers."

Among the 499 counties in the report, fewer than half (203) had major home-ownership expenses on typical homes in the fourth quarter that were affordable for average local wage earners. The largest of those counties, based on the 28-percent guideline, were Cook County (Chicago), IL; Harris County (Houston), TX; Philadelphia County, PA; Hillsborough County (Tampa), FL and Cuyahoga County (Cleveland), OH.

Report Methodology
The ATTOM Data Solutions U.S. Home Affordability Index analyzes median home prices derived from publicly recorded sales deed data collected by ATTOM Data Solutions and average wage data from the U.S. Bureau of Labor Statistics in 499 U.S. counties with a combined population of 232.4 million. The affordability index is based on the percentage of average wages needed to pay for major expenses on a median-priced home with a 30-year fixed rate mortgage and a $100,000 loan. Those expenses include property taxes, home insurance, mortgage payments and mortgage insurance. Average 30-year fixed interest rates from the Freddie Mac Primary Mortgage Market Survey were used to calculate the monthly house payments.

The report determined affordability for average wage earners by calculating the amount of income needed for major home ownership expenses on a median-priced home, assuming a $100,000 loan and a 28 percent maximum "front-end" debt-to-income ratio. For instance, the nationwide median home price of $297,200 in the fourth quarter of 2020 required an annual gross income of $64,447, based on a $100,000 loan and monthly expenses not exceeding the 28 percent barrier — meaning households would not be spending more than 28 percent of their income on mortgage payments, property taxes and insurance. That required income is more than the $64,447 average wage nationwide based on the most recent average weekly wage data available from the Bureau of Labor Statistics, making a median-priced home nationwide unaffordable for an average household with two wage earners.

Source: ATTOM Data Solutions press release

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