Inman News

1 October 2015

Although some housing industry analysts are concerned that home price growth is outpacing wage growth, some are celebrating the news that that U.S. home affordability just hit to a two-year low.

According to a joint report issued today by housing data provider RealtyTrac and real estate services provider Clear Capital, home prices in the first quarter of the year hit their most affordable level in two years, despite the average home price increasing at more than twice the pace of the average weekly wage.

The companies said average home price appreciation outpaced average wage growth between Q1 2014 and Q1 2015 in 397 of the 582 counties analyzed for the report, or 68 percent.

But during the same time period, the average interest rate on a 30-year fixed rate mortgage dropped 57 basis points, or 13 percent, from 4.34 percent in Q1 2014 to 3.77 percent in Q1 2015.

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The drop in interest rates — along with wage growth outpacing home price appreciation in 32 percent of counties — meant buying a home in the first quarter required a smaller share of the average wage compared to a year ago in 339 of the 582 counties, or 58 percent of counties surveyed, according to the report.

“This analysis somewhat surprisingly shows that affordability is actually improving in most markets thanks to falling interest rates and slowing home price growth, which is allowing wage growth to catch up in some markets,” said Daren Blomquist, vice president of RealtyTrac.

“At the national level, buying an average-priced home in the first quarter of 2015 was the most affordable it’s been in two years and nearly twice as affordable as it was in the second quarter of 2006 — when affordability was its worst in the past 10 years.”

According to the report, the least affordable county in the nation is Eagle County, Colorado, where 138.5 percent of the average wage was needed to make monthly payments on an average priced home.

Other counties on the least-affordable list were:

  • Kings County (Brooklyn), New York (126.3 percent)
  • Marin County, California, in the San Francisco metro area (119.3 percent)
  • Santa Cruz County, California, (109 percent)
  • Maui County, Hawaii (99.2 percent)

Only about 3 percent of the counties analyzed for the report exceeded their 10-year affordability averages in the first quarter, including counties in the Nashville, Lansing, Michigan, Cincinnati, Memphis, Washington, D.C., and Atlanta metro areas.

However, the report noted that some bellwether markets countered the national trend and actually saw wage growth match or even outpace home price growth over the past year, including Cook County, Illinois; Orange County, California; Brooklyn, New York; Fairfax County, Virginia; and Riverside County in Southern California, where the average weekly wage in Q1 was up 10 percent from a year ago, double the 5-percent growth in average home prices during the same time period.

Looking ahead, the report suggested that if the Fed raises interest rates in December as expected, affordability could become an even bigger issue for buyers than it already is. According to the report, if interest rates rose 25 basis points in the first quarter of 2016, and home prices and wages continue to grow at the same pace, about 30 percent of the counties surveyed would exceed their historic affordability averages.

Thirty-one percent of counties would exceed affordability if rates rose 50 basis points, and 35 percent of counties would be impacted in the event of a full percentage point increase, according to the report.

The report analyzed Q1 average weekly wage data from the Bureau of Labor Statistics, average prices for single-family homes and condos from data collected by Realty Trac, average interest rates on 30-year, fixed-rate mortgages from Freddie Mac’s Primary Mortgage Market Survey and data from Clear Capital’s Home Data Index.