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Home affordability improves in half of U.S. counties

The U.S. housing market as a whole slid further into unaffordable territory in the fourth quarter, but things are looking up for first-time buyers in numerous cities and counties. 

housecorrect(1)Home affordability increased in 272 out of 469 counties with significant populations in the fourth quarter, according to Attom Data Solutions. That is more than half of the U.S. counties tracked by the company, and includes some markets that have seen a huge run-up in prices, such as Miami and Orange and San Diego counties in California.

This doesn’t suggest that conditions are good in these areas for buyers. Many of these same cities and counties are less affordable now than they’ve typically been in the past, but it is good news that the slide into unaffordability may have reached a bottom.

“The data from our report shows evidence that many local markets are close to bottoming out when it comes to home affordability,” said Daren Blomquist, senior vice president with Attom Data Solutions.

“This local market improvement is driven primarily by a slowing rate of home price appreciation, which is falling more in line with wage growth. It’s really not a result of some sudden jump in incomes in most cases,” he told Scotsman Guide News.

There is much disagreement among economists about how relatively unaffordable the U.S. market has become. The National Association of Realtors (NAR) index suggests that affordability is at about a 10-year low, but is still relatively affordable when compared to history. 

As of October, NAR estimated that a family needed an income of $52,416  to qualify for a median-priced home ($257,900), assuming a 20 percent downpayment. NAR has further estimated that the monthly payment of median priced home of $1,092 would represent 17 percent of the income of a median wage earner. A monthly payment that consumes up to 20 percent of a family’s income is still considered affordable.

NAR Chief Economist Lawrence Yun said these conditions are still slightly more affordable than during the year 2000, a market considered normal. NAR’s index was measured at the level of 146 in October, which compared to about 120 in the year 2000, indicating conditions on a nationwide basis are more affordable now.

“That’s largely because rates are so low,” Yun said during an interview Thursday. He noted, however, that on the local level conditions vary considerably. The market is affordable in cities like Indianapolis and St. Louis, but not in places like San Francisco and Seattle.

Attom’s data suggest that the market as a whole is in unaffordable territory, however.  Attom’s affordability index is based on the median price relative to wages in an area. It is benchmarked at 100, where an index below 100 indicates that median home prices are less affordable than the historic average.

In the fourth quarter, the national index fell three points in the fourth quarter to a level of 91. Unlike NAR, Attom assumes a 3 percent downpayment. As of the fourth quarter, the total monthly mortgage payment on the national median-priced home would consume about 35 percent of a person’s income, which is above the historical average of 32 percent, the company said.  

Attom reported that 357 out of 496 counties, or 76 percent, had an index below 100, thus were below their historic average for affordability.  Also, Attom reported that conditions worsened in 197 counties, including places like Los Angeles, Las Vegas and Phoenix.


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