Affordability slips in Q1 as prices, mortgage rates continue to climb

Inman News

The median price for a home was more expensive than historical averages in 79% of counties nationwide — a jump from 1Q21 when only 38% of counties saw prices exceed historical averages.

Home affordability in America continued to erode during the first quarter of 2021, as rising mortgage rates and prices continued to box more Americans out of homeownership, new data shows.

The median price for a single-family home was more expensive than historical averages in 79 percent of counties nationwide — a jump from the first quarter of 2021 when only 38 percent of counties saw prices exceed historical averages, according to a new report Thursday from the real estate data curator Attom Data Solutions.

“It’s certainly no surprise that affordability is more challenging today for prospective homebuyers than it was a year ago,” Rick Sharga, executive vice president of market intelligence for ATTOM, said in a statement. “Historically low mortgage rates and higher wages helped offset rising home prices over the past few years, but as home prices continue to soar and interest rates approach 5 percent on a 30-year fixed rate loan, more consumers are going to struggle to find a property they can comfortably afford.”

Wage growth seen during the pandemic labor market has not managed to offset the massive growth in housing costs for a majority of Americans, with the portion of wages required for homeownership costs growing at the fastest pace in more than 15 years, making whatever wage growth workers got over the pandemic pithy, especially in the face of 40-year inflation highs.

Home prices are outpacing wage gains in four of every five markets, with 473 of the 586 counties analyzed seeing greater home price growth, according to Attom. Wage growth surpassed home price growth in only 113 of the counties with big, expensive cities including Chicago, Brooklyn, San Jose, and Seattle among the areas where wage growth was higher.

Attom found that 26.3 percent of the average national wage of $66,560 was needed for the typical cost of a single-family home in the first quarter — the highest percentage needed since the third quarter of 2008. That 26.3 rate was up from 24.9 percent in the fourth quarter of 2021, and 21.8 percent in the first quarter of 2021 — the largest annual increase since 2005, according to Attom.

While costs are growing at an alarming rate, they remain below the 28 percent standard used by lenders to determine whether a home was affordable are not in roughly half the counties analyzed by Attom. 283 of the 586 counties analyzed — 48 percent — required less than 28 percent of the average annual wage.

While home prices may not be rising as extravagantly, it’s likely homebuyers in those areas will still have their budget stretched by rising rates and inflation, Sharga said.

“The ‘x-factor’ is what impact 8 percent inflation rates will have on these households, and their ability to meet their financial obligations. Rising food and energy prices could be a hidden factor that makes affordability even more of a challenge for homebuyers and makes it more difficult to make ends meet for current homeowners,” he said.