One in every four housing markets is found to be less affordable today than their historic averages. In its most recent data for the first quarter of 2017, ATTOM Data Solutionsquantified what many experts already predicted from the current situation of the real estate market.
With demand surging and housing inventory still lacking, there is no way home prices would remain the same. They are bound to drive up and it is indeed, what we are seeing here.
The Report
To get the Home Affordability Index, they analyzed data from 95 counties and the results showed an affordability index below 100 for Q1 of 2017. This means that the share of average wage needed to buy a median-priced home is above the historic average. This was not seen since the fourth quarter of 2009.
On a national scale, the index for Q1-2017 is at 103, an over eight-year low. A 103 is equivalent to 33.6 percent of average weekly wages required to buy a home with an average sale price. The historic average is at 34.6.
In the report, you can find which counties exceeded the 43 percent requirement – mainly in New York City, the San Francisco Bay Area, Southern California, and Washington, DC. Those that require a 100 percent of average wages include Kings County in Brooklyn, Santa Cruz and Marin Counties in California, and Maui County in Hawaii, among others. Still, there are counties that would only require less than 15 percent of average wages for the purchase of a median-priced home. This includes some counties in Georgia, Ohio, and Michigan, etc.
More affordable markets are said to be in the Midwest and Rust Belt regions, while those in and around other major metros and along coasts are still pressured by high home prices. Housing scarcity is affecting the West Coast severely.
Further Implications
If you are earning average wage, this finding means you will need to spend a good 43 percent of your income to buy an average-priced home in 97 of the 379 counties surveyed. Remember that 43 percent is the maximum DTI ratio allowed by the CFPB for a qualified mortgage.
A Good News
Although this news automatically comes out as panic-worthy, there is actually a glimmer of hope for 53 percent of the counties analyzed. In these markets, wage growth was seen to be faster than the increase in median home prices.
In terms of affordability, 9 percent of the counties showed an improvement from a year ago, but it’s not enough basis to be confident.
As a homebuyer looking for a home, the location definitely matters because it will dictate how you will go about strategizing your financial plan for the next couple of decades (or more). Investigate first and see to it that your income – and assets, if any – are enough to cover for the burden of a mortgage. Data can only tell you so much. Successful ownership is a large part about you, and one smack of a smart strategy.
