Home Affordability Gets Even Tougher As Prices, Mortgage Rates Surge

ATTOM, a property information and analytics provider, today released its first-quarter 2022 U.S. home affordability report, showing that median-priced single-family homes were less affordable in the first quarter compared to historical averages in 79% of counties across the nation with enough data to analyze.

That data was up from just 38% of counties that were historically less affordable in the first quarter of 2021, to the highest point since mid-2008, as home prices continued rising faster than wages in much of the country.

The report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly homeowner expenses — including mortgage, property taxes and insurance — on a median-priced single-family home, assuming a 20% down payment and a 28% maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics.

“It’s certainly no surprise that affordability is more challenging today for prospective home buyers than it was a year ago,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “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% on a 30-year fixed rate loan, more consumers are going to struggle to find a property they can comfortably afford.”

Compared to historical levels, median home prices in 461 of the 586 counties analyzed in the first quarter of 2022 were less affordable than in the past. The latest number was up from 449 of the same group of counties in the fourth quarter of 2021 and 224 in the first quarter of 2021. That increase continued as the median national home price spiked 16%, year over year, to a record high of $320,000 while average wages across the country rose just 7%.

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Major ownership costs on median-priced homes around the U.S. still remained within the financial means of average workers in the first quarter of 2022, consuming 26.3% of the $66,560 average national wage. That was within the 28% ceiling considered affordable by common lending standards.

But the 26.3% of average wages needed to buy a median-price home stood at the highest point since the third quarter of 2008. It was up from 24.9% in the fourth quarter of 2021 and 21.8% in the first quarter of last year – the largest annual increase since at least 2005.

“The gig economy is real, and it’s growing fastest among the under-30 crowd,” said Jim McQuaig, senior vice president of Churchill Mortgage in Washington. “Post-pandemic, you’re seeing a higher proportion of this age bracket work as independent contractors, which provides flexibility but also makes it harder to qualify for a mortgage. Our economy has fundamentally changed in the last 24 months, but it’s hard to say yet how that will play out in the housing market over the next few years.”

The worsening affordability scenario for potential home buyers came as the housing market kept booming into its 11th year, both because of and in spite of the Covid pandemic that remained a threat to the economy.

Throughout the pandemic, a record level of buyers have flooded the market, chasing an historically limited supply of homes for sale. This high demand was due in part to mortgage rates hovering around 3%, and in part because of the flight of urban renters leaving congested virus-prone areas for the perceived safety of a house and yard and the space for growing work-at-home lifestyles. As demand has spiked, prices have jumped beyond wage increases, damaging affordability.

Despite the continued decline in historic affordability, major homeownership expenses on typical homes still were affordable to average local wage earners during the first quarter of 2022 in about half of the 586 counties in the report, based on the 28% guideline. The largest were Chicago’s Cook County, Houston’s Harris County, Dallas County, Bexar County in San Antonio and Wayne County in Detroit.

The most populous of the 303 counties where major expenses on median-priced homes were unaffordable for average local workers in the first quarter of 2022 were Los Angeles County, Maricopa County in Arizona, San Diego County, California’s Orange County and Kings County in the state of New York.

Median single-family home prices in the first quarter of 2022 were up by at least 10% over the first quarter of 2021 in 371, or 63%, of the 586 counties included in the report. Data was analyzed for counties with a population of at least 100,000 and at least 50 single-family home and condo sales in the first quarter of 2022.

Among the 49 counties with a population of at least 1 million, the biggest year-over-year gains in median prices during the first quarter of 2022 were in St. Louis County, Missouri (up 40%); Wake County (Raleigh), North Carolina (up 29%); Maricopa County (Phoenix), Arizona (up 28%); Collin County (Plano), Texas (up 27%) and Clark County (Las Vegas), Nevada (up 26%).

Counties with a population of at least 1 million where median prices went up the least, year-over-year, during the first quarter of 2022 were Westchester County, New York (outside New York City), up less than 1%; Montgomery County, Maryland (outside Washington, D.C.) (up 1%); Cook County (Chicago), (up 2%); Kings County (Brooklyn), (up 4%) and Fairfax County, Virginia (outside Washington, D.C.) (up 5%).

Home price appreciation was greater than weekly wage growth in the first quarter of 2022 in 473 of the 586 counties analyzed in the report (81%), with the largest including Los Angeles County, Harris County (Houston), Maricopa County (Phoenix), San Diego County and Orange County (outside of Los Angeles).

Average annualized wage growth surpassed home-price appreciation in the first quarter of 2022 in 113 of the counties in the report (19%), including Cook County, (Chicago); Kings County (Brooklyn); King County (Seattle); Santa Clara County (San Jose) and New York County (Manhattan).

Major ownership costs on median-priced, single-family homes in the first quarter of 2022 consumed less than 28% of average local wages in 283 of the 586 counties analyzed (48%), assuming a 20% down payment. That was down slightly from 52% in the fourth quarter of 2021 for the same group of counties but well down from 66% in the first quarter of last year.

“The good news is that in almost half the counties we reviewed, home ownership costs remained below 28% for households with average income,” said Sharga. “But the X factor is what impact 8% 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 home buyers and makes it more difficult to make ends meet for current homeowners.”

Among those counties surveyed, 98% saw an increase in the portion of average local wages consumed by major ownership expenses from the first quarter of last year to the same period this year.

A total of 303 counties in the report (52%) required more than 28% of annualized local weekly wages to afford a typical home in the first quarter of 2022. Counties that required the greatest percentage of wages were Santa Cruz County, California (92.7% of annualized weekly wages needed to buy a home); Kings County (Brooklyn) (91.5%); Marin County, California (outside San Francisco) (79.7%); Maui County, Hawaii (74.8%) and San Luis Obispo County, California (73.7%).

Despite the downward trend in affordability, annual wages of more than $75,000 still were needed to afford major costs on the median-priced home purchased during the first quarter of 2022 in just 138, or 24%, of the 586 markets in the report.

The top 25 highest annual wages required to afford typical homes again were all on the East or West Coasts, led by New York County (Manhattan): $329,747; San Mateo County (outside San Francisco): $286,976; Santa Clara County (San Jose, California): $266,934; San Francisco County, California ($264,038) and Marin County (outside San Francisco): $250,106.

The lowest annual wages required to afford a median-priced home in the first quarter of 2022 were in Schuylkill County, Pennsylvania (outside Allentown) ($12,011); Cambria County, Pennsylvania (outside Pittsburgh) ($17,129); Bibb County (Macon), Georgia ($18,027); Fayette County, Pennsylvania ($18,583) and Blair County (Altoona), Pennsylvania ($19,221).

Counties where the smallest portion of average local wages was required to afford the median-priced home during the first quarter of this year were Schuylkill County, Pennsylvania (outside Allentown) (7% of annualized weekly wages needed to buy a home); Macon County (Decatur), Illinois (9.7%); Peoria County, Illinois (10.2%); Bibb County (Macon), Georgia (10.2%) and Rock Island County (Moline), Illinois (11%).

Counties with a population of at least 1 million where major ownership expenses typically consumed less than 28% of average local wages in the first quarter of 2022 included Wayne County (Detroit), Michigan (11.9%); Allegheny County (Pittsburgh) (14.2%); Cuyahoga County (Cleveland), Ohio (15.1 %); Philadelphia County, Pennsylvania (16%) and Cook County (Chicago), 20.6%.

A total of 303 counties in the report (52%) required more than 28% of annualized local weekly wages to afford a typical home in the first quarter of 2022. Counties that required the greatest percentage of wages were Santa Cruz County, California (92.7% of annualized weekly wages needed to buy a home); Kings County (Brooklyn), New York (91.5%); Marin County, California (outside San Francisco) (79.7%); Maui County, Hawaii (74.8%) and San Luis Obispo County, California (73.7%).

Aside from Kings County, New York, the counties with a population of at least 1 million where homeownership consumed the highest percentage of average annualized local wages in the first quarter of this year included Orange County, California (outside Los Angeles) (67.8%); Queens County, New York (65%); Alameda County (Oakland), California (59%) and New York County (Manhattan, New York (58.9%).

Just one in four counties require annual wages of more than $75,000 to afford a typical home. Despite the downward trend in affordability, annual wages of more than $75,000 still were needed to afford major costs on the median-priced home purchased during the first quarter of 2022 in just 138, or 24%, of the 586 markets in the report.

The top 25 highest annual wages required to afford typical homes were all on the East or West Coasts, led by New York County (Manhattan), $329,747; San Mateo County (outside San Francisco), $286,976; Santa Clara County (San Jose), California ($266,934); San Francisco County, California ($264,038); and Marin County (outside San Francisco), California ($250,106).

The lowest annual wages required to afford a median-priced home in the first quarter of 2022 were in Schuylkill County, Pennsylvania (outside Allentown) ($12,011); Cambria County, Pennsylvania (outside Pittsburgh) ($17,129); Bibb County (Macon), Georgia ($18,027); Fayette County, Pennsylvania (south of Pittsburgh) ($18,583); and Blair County (Altoona), Pennsylvania ($19,221).

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