Affordability Remains Unshaken By Home Price Increases

Despite home price increases over the last three years, homes are still affordable by historical standards, according to the Urban Institute's Monthly Chartbook: Housing Finance At A Glance.

The August 2015 edition of At A Glance, the Urban Institute Housing Finance Policy Center’s reference guide for mortgage and housing market data, noted that even if interest rates rose to 6 percent, affordability would be at the long-term historical average.

The current median sales price rests at $219,000 as of May 2015, while the maximum affordable price is $297,364. Meanwhile, the maximum affordable price at a 6 percent interest rate is $247,421, the report stated.

Affordability among the San Francisco, California; San Jose, California; and Los Angeles, California metros all fall under the 0.8 debt-to-income (DTI) ratio, where one indicates an affordable market with a smaller DTI ratio, according to Urban Institute. In addition, Washington, District of Columbia and Miami, Florida metros are also ranked low on the affordability scale with a DTI ratio under 0.9.

On the other hand, the Cleveland, Ohio metro's DTI ratio is over 1.3, making this market highly affordable. Cincinnati, Ohio; Pittsburgh, Pennsylvania; Las Vegas, Nevada; and Columbus, Ohio metros wrap up the top five most affordable metros with DTI ratios all well above one.

The strong year-over-year growth in house prices through 2013 has slightly slowed down since 2014, according to the report and other HPI data.

National home prices have risen 36.7 percent from the trough, but still must grow 8 percent to reach pre-crisis peak levels. At the MSA level, three of the top 15 MSAs have reached their peak HPI– Houston, Texas; Dallas, Texas; and Denver, Colorado. Two MSAs particularly hard hit by the boom and bust–Phoenix, Arizona and Riverside, California–would need to rise 36 and 38 percent to return to peak levels, respectively.

Earlier in August, CoreLogic’s June 2015 Home Price Index found that home prices were edging up once again thanks to pent-up buyer demand, affordability, consumer confidence, and an improving labor market. According to  (HPI) report, home prices, including distressed sales, increased by 6.5 percent year-over-year in June.

“The current cycle of home price appreciation is closing in on its fourth year with no apparent end in sight,” said Anand Nallathanbi, president and CEO of CoreLogic. “Pent up buying demand and affordability together with higher consumer confidence buoyed by a more robust labor market, are a potent mix fueling a 6.5 percent jump in home prices through June with more increases likely to come.”