Housing affordability declines to lowest in nearly a decade, Attom says

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san francisco housingChameleonsEye/Shutterstock

  • Housing affordability hit its worst level in nearly a
    decade during the first quarter, according to Attom Data
    Solutions. 
  • Attom measures affordability by comparing average wages
    to median home prices, to determine what share of income people
    need to spend on housing. 
  • Prospective buyers needed to shell out more because
    mortgage rates rose. The pace of home-price growth actually
    slowed, according to Attom.

Housing in the US has not been this unaffordable since property
values were in free-fall 10 years ago. 

In the first quarter, affordability as measured by the average
share of income needed to buy a median-priced house was at its
worst since the third quarter of 2008, according to
Attom Data Solutions
. The firm’s affordability index fell to
95, the lowest since it read at 86 nearly a decade ago.

This was not just because home prices were too high. In fact, the
rate of appreciation slowed in the first quarter, according to
Attom. 

What really tipped the scale was the rise in mortgage rates,
said Daren Blomquist, the senior vice president at
Attom, in a report. Mortgage rates
 hit their highest
level in seven years last month, and the national average 30-year
fixed rate is now above 4.4%, according to Bankrate.com. A
year ago, it was 3.8%.

“Home-price appreciation continued to outpace wage growth,
speeding up the affordability treadmill for prospective
homebuyers even without the rise in mortgage rates,” Blomquist
said.  

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The recovery in home prices has been great for homeowners who
lost value in the financial crisis. But unlike prices,
homebuilding hasn’t yet returned to precrisis levels, leading to
a limited inventory of affordable houses. In some major
cities including New York, developers have overbuilt in the

luxury end
of the market where it’s more lucrative. 

The median-priced home was unaffordable for people earning the
average wage in 75% of US counties, Attom said. In Marin County,
San Francisco, where affordability was worst, the average wage
earner would have needed 133% of their income to buy a
median-priced home. In Wayne County, Michigan, it was 14%. 
 

The reason why affordability worsened so much — higher mortgage
rates — is a mixed bag in terms of what it means for the housing
market. 

That’s because the decision to buy a home is not only influenced
by the level of interest rates. Buying a home is about more than
just making an investment — it’s about fulfilling a lifelong
dream, putting down roots, and leaving something tangible for
future generations. And so, a few hundred dollars extra every
month is unlikely to deter many first-time shoppers who’ve found
their dream home.


Data
compiled by Ellie
Mae
 confirms this. The mortgage-software provider’s most
recent numbers, for May, showed that the share of loans taken out
for buying homes (not for mortgage refinancing) hit a high not
seen since record keeping began in 2011. Refinancing, however,
has been on the decline, and fell to a
17-year low
in May as borrowing costs increased.  

“While inventories remain tight, we’re seeing an increasing
percentage of purchase loans,” Ellie Mae President and CEO
Jonathan Corr said.