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Home affordability remains a debatable question

Home prices have pushed into record territory to begin the year, but the experts still don’t agree about the relative affordability of the U.S. market for people hunting for lower-priced homes.

Opinions fall into roughly two camps. Some studies suggest that just over half of the 50 largest cities have overvalued and unsustainable home prices, and others say the overall market is significantly more affordable than it was in the year 2000, when home prices were last considered truly normal.  

Attom Data Solutions last week estimated that through the midway point of the year, home affordability hit its lowest point in nearly 10 years, with home prices rising faster than wages in 64 percent of local markets. Among the least affordable areas were the home counties for Austin, Texas; San Francisco; and San Jose, California.

qmloans(1)"When we look at the nationwide numbers, we are less affordable in the second quarter than we have been historically," Attom Senior Vice President Daren Blomquist said during an interview Monday. "This is the first time we have fallen below that line since the third quarter of 2008. So, I would lean on the side, that nationwide homes are not affordable for average wage earners trying to purchase their first home." 

On a nationwide basis, the market’s median home price of $245,000 as of the second quarter was technically “unaffordable” for a person earning the national average wage of $55,393, Attom Data says.

A person needs to earn $61,709 to “afford” a median-priced home, according to the company. A gross income at that level is needed to keep the overall house payments at 28 percent of a person’s income, what the federal government generally considers an appropriate house-debt level. This all assumes a mortgage with a 3 percent downpayment. 

Blomquist said affordability issues are fairly widespread around the country too. Some 59 percent of the 492 markets it tracks were below the historic affordability threshold in the second quarter. 

"There are still 40 percent of the markets that are still as affordable or more affordable than they have been historically, but that 60 percent that aren’t affordable are not just located on the coasts," Blomquist said. "It is places like Denver, Nashville [Tennessee] and Houston. Even counties [with major cities like] Atlanta, Austin [Texas], Charlotte [North Carolina] are not affordable by historic standards.”     

CoreLogic, which provides data for the S&P CoreLogic Case-Shiller price indices, has also been raising red flags about home costs. The company reported earlier this month that 52 percent of the nation’s 50 top cities and 40 percent of the top 100 markets were overvalued. In other words, the median home price was 10 percent higher than the long-term sustainable level.

Last month, economist David Blitzer, the managing director of the S&P price indices, said through this past March prices in the top 20 cities were rising faster than inflation.Case-Shiller’s next price report will come out on Tuesday.

Other economists say home prices are not the issue, as rising wages and still reasonably low mortgage rates have kept the real costs of homes in check. The problem, they say, has been a severe shortage of homes for sale. First-time homebuyers are having an especially hard time finding lower-priced homes under $200,000, according to Realtors.

The title insurer First American Corp. estimated that as of April the national real price of homes, adjusted to account for mortgage rates and incomes, was 32 percent below the peak in July 2006, and nearly 9 percent lower than the year 2000 level. First American noted that home affordability deteriorated substantially in April with a sharp rise in mortgage rates, however.

"It is becoming less affordable, yes, but is not yet unaffordable," First American's Chief Economist Mark Fleming said during an interview last week. "And that is because there is income growth and, more importantly, very low rates." 

The analytics company Black Knight also falls within the camp that says the housing market remains broadly affordable, although less so with the rise in rates and home prices. The costs for an average mortgage borrower making a 20 percent downpayment have increased by $150 per month in the four months through April, Black Knight said earlier in June. Black Knight said just seven states were less affordable than their long-term normal level through April, however. 


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