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Blog: Is the U.S. housing market still affordable?

Housing analysts continue to express mixed opinions about the relative affordability of homes, but recent studies suggest that higher sales prices, higher mortgage rates and anemic wage growth have meant that homes are pricier in real terms compared to last year.

Attom Data Solutions’ U.S. affordability index, which is based on wages, the cost of 30-year fixed mortgages and median-home prices, for example, stood at a nine-year low for affordability in the past third quarter, the lowest since third-quarter 2008. Home affordability this past third quarter declined in 79 percent of the 406 counties Attom Data tracks, compared to the same quarter a year ago.

priceblogAttom said, however, that affordability levels in third-quarter 2017 improved in 60 percent of the counties it tracks compared to the second quarter. In the third quarter, mortgage rates remained in check, and the boost in wages outpaced home price growth in numerous counties, the company said. 

The U.S. market also remains affordable by historic standards. Attom’s national index was at 100, which means that the U.S. market is right in line with its historic affordability level.

Recently, the data tracking company CoreLogic also weighed in on home affordability, labeling nearly half the top 50 U.S. housing markets as overpriced. CoreLogic Chief Economist Frank Nothaft told Scotsman Guide News that should serve as a caution signal that the market is becoming much less affordable.

“When I look at our metrics for overvalued markets, to me, it is a warning sign,” he said during a phone interview last week. “Maybe it is a flashing amber light that says ‘watch out.’”

The overvalued metros — markets where the home prices are now at least 10 percent higher than historical levels — could begin to see a sharp slowdown in home-price growth, and also potentially lower sales.

As of late August, home prices in 46 percent of the top 50 U.S. metros, and 34 of the top 100 cities, were deemed overvalued, according to CoreLogic.

Nothaft said the tight inventory of homes for sale in many markets has prompted price growth in the range of 5 percent to 7 percent. He said that won’t last in overvalued markets, however.

“I worry about affordability, especially in a rising interest-rate environment,” Nothaft said. He noted that interest rates have jumped up a half a percentage point, along with a 6 percent annual gain in home prices, over the past 12 months. That combination, Nothaft said, has raised the typical mortgage payment by about 13 percent.

“There are very few families that saw a 13 percent increase in their income over that 12-month period,” he said. If prices and mortgage rates rise at the same pace for another year, he said, the pressures on affordability could begin to grind down some markets.


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