Home affordability hits a seven-year low

The Scotsman Guide - Victor Whitman - 30 SEP 16

The median home price in nearly one in four U.S. county markets is now unaffordable, according to a new third-quarter analysis by Attom Data Solutions. Home prices in 24 percent of the 414 tracked counties were deemed unaffordable, up from 19 percent a year earlier and the highest percentage mark for home unaffordability since third-quarter 2009. Daren Blomquist, senior vice president for Attom Data Solutions, spoke with Scotsman Guide News about why home affordability is deteriorating. 


Opinions differ on the relative affordability of homes. Do you think affordability is a problem right now?


Yes,  I do think it is a problem. To nuance that, homes are much more affordable than they were during the last housing bubble. It is not a problem in all markets, or even the majority of markets, but it is an emerging problem in an increasing number of markets where homes are less affordable than their historic norms.


You don’t then subscribe to the theory that wage gains and low mortgage rates have made up for rising prices.


Those are mitigating affordability problems, but there is only so much low mortgage rates can do. On the income side, according to the Bureau of Labor Statistics (BLS) data, we have been seeing wage growth; however, we saw that wage growth reverse course in the first quarter of this year, which is the most recent wage data from the BLS. That is probably the primary reason we saw this turn for the worse in affordability.


Are there other reasons why affordability has declined substantially this quarter?


The primary culprit is the lack of wage growth. On the other hand, because mortgage rates are going down, it actually helped pump up home prices. We saw home-price appreciation accelerate in the third quarter compared to a year ago in the majority of markets, so that was part of it too. But the main culprit was the decline in wages. Nationwide, average weekly wages were down half a percent, and that really stands out because that was following 13 consecutive quarters where wage growth was positive.


Where are some of the problem markets?


Markets that have an affordability index below 100, which means they are less affordable than their historic norm, are all over the map. There are 101 counties, or 24 percent of the tracked counties, that are below their affordability norms. Denver is one that stands out near the top. There is Fulton County, Georgia, which is the Atlanta area, is below its affordability norm. There is a county in the Charlotte, North Carolina area; Nashville, Tennessee; Austin, Texas; Dallas, even Detroit; New Orleans; even St. Louis County. Again, if you look at St. Louis County, the price there looks affordable. You can get homes for a median sales price under $200,000. Compared to what the typical average wage earner needs to spend as a percentage of their income, it has become unaffordable. Then you do have places like Alameda County in San Francisco that are unaffordable. That is probably not as much of a surprise. Brooklyn is lower than its historic average. Portland, Oregon, is on that list too.

Are any of these markets in bubbles?



I would say yes. Some of these markets are below their affordability norms, and just have an absurd amount of percent of wages needed to buy a median-priced home. In our data, we compare back to when they were least affordable to now. Looking at Brooklyn, New York, as an example, the affordability index was 85 back in 2007 at the peak of the last bubble, and we are now at 93. So, we are not quite as unaffordable as then, but we are getting very close. So, I would say that is a bubble. Alameda County is also at a 93 on the index. Those are the type of markets that are entering bubble territory.