Report Shows Most Affordable Home Markets

The national mortgage payment-to-income ratio sits at 21 percent, according to Black Knight Financial Services' latest release of its Mortgage Monitor Report that was released today. The report, which is based on data from the end of January 2015, notes despite two years of home price increases at the national level,  affordability is better now than it was in the years prior to the housing bubble. This is due primarily to the current low interest rate environment.

The payment-to-income ratio now stands above the 26 percent average seen during the 2000 to 2002 period just prior to drastically increasing home prices. It is up from the 17.6 percent ratio seen in October 2012, but down from the July 2006 high of 34.7 percent. Home prices could rise another 25 percent, or interest rates could jump 2 percent, before the affordability ratio would reach pre-bubble levels.

Level of affordability varies by state with Washington D.C., Hawaii, and Alaska all being less affordable now than in the pre-bubble years. In Washington, D.C., the current payment-to-income ratio is 40 percent, which is lower than the 62 percent ratio shown at the peak of the housing bubble. Michigan, Texas, and Florida currently have ratios under the national average, with Michigan having a low ratio at 16.9 percent.

Washington, D.C., Hawaii, and California are the states with the least affordable homes in the country. The payment-to-income rate in California is 32.5 percent, second only to Washington, D.C., Indiana is currently the most affordable area in the country with a ratio of 12.6 percent, with Michigan coming in second. California affordability ratios are nearing pre-bubble levels only 1.3 percent off the 2000 to 2002 ratio. Illinois and Mississippi ratios are 10 percent lower than pre-bubble numbers.

A 1 percent increase in interest rates could push an additional seven states above 2000-2002 payment-to-income levels. Delaware, California, Maryland, New York, Minnesota, North Dakota, and Wyoming would be less affordable than pre-bubble number with the slight increase.

Data shows states where income has kept up with home prices see a more affordable home market. In Connecticut the median household income grew 30 percent, while the median home price increased 31 percent. This resulted in a home price-to-income ratio increase of 1.04 percent.

Homes in states where the prices have significantly outpaced income are seeing payment to income ratios near or above pre-bubble levels even with interest rates down 4.35 percent from early 2000. Delaware’s median household income grew 5 percent compared to its median home price increase of 47 percent, resulting in a home price-to-income ratio increase of 10.07 percent. Overall, the U.S. median household income increased 23 percent, while the median home price increased 41 percent. The change to payment-to-income ratio in the U.S. from the 2000 bubble is 5 percent.