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Reports Highlight Rising Home Prices, Shrinking Homeownership Affordability

Two new data reports are respectively tracking the continued increase in median home prices with the simultaneous slow evaporation of affordable homeownership opportunities.

CoreLogic reported that home prices nationwide, including distressed sales, increased 8.2% year-over-year in November and were up 1.1% from October to November. The CoreLogic Home Price Index (HPI) Forecast predicted home prices will inch up by 0.2% from November 2020 to December 2020 and rise by 2.5% from November 2020 to November 2021.

Furthermore, CoreLogic is also predicting that slowing buyer demand and a growing housing inventory will contribute to annual home price growth slowing from 7.5% during the first quarter of this year to 2.5% by November. However, another round of stimulus actions under a new Biden administration could fuel new homebuyer demand among low- and middle-income families and spark additional home price growth.

“The demographic tailwind has arrived as Generation X and millennials drive housing demand,” said CoreLogic Chief Economist Frank Nothaft. “Lower-priced home values increased about one and a half times faster than higher-priced home values in November, as first-time buyers tend to seek out homes within the lower price ranges.”

Separately, a new report found median home prices of single-family homes and condos during the fourth quarter of 2020 were less affordable than historical averages in 55% of counties with enough data to analyze. According to ATTOM Data Solutions’ latest U.S. Home Affordability Report, the fourth quarter percentage is up from 43% in the fourth quarter of 2019 and up 33% from three years ago.

ATTOM defined affordability for average wage earners by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes and insurance — on a median-priced home, assuming a $100,000 loan and a 28% maximum “front-end” debt-to-income ratio. Compared to historical levels, 275 of the 499 counties analyzed in the fourth quarter of 2020 were less affordable than past averages, up from 217 of the same group of counties in the fourth quarter of 2019 and 164 in the fourth quarter of 2017.

Median home prices in the fourth quarter of 2020 were up by at least 10% year-over-year in 395, or 79%, of the 499 counties included in the report. With prices increasing at a greater pace than earnings, major homeownership expenses absorbed 29.6% of the average wage across the nation during the fourth quarter of 2020, up from 26.4% one year before. But annual wages of more than $75,000 were needed to afford the typical home in 124, or 25%, of the 499 markets in the fourth quarter data.

“Owning a home in the United States slipped into the unaffordable zone for average workers across the nation in the fourth quarter as the numbers continued a year-long slide in the wrong direction,” said Todd Teta, Chief Product Officer with ATTOM Data Solutions. “The latest housing market data shows the average worker unable to meet the 28% affordability guideline used by lenders. That’s happened as home prices have continued rising throughout 2020 and the housing market has remained remarkably resilient in the face of the brutal economic fallout from the coronavirus pandemic. The future remains wholly uncertain and affordability could swing back into positive territory. But for now, things are going in the wrong direction for buyers.”

 

About Author: Phil Hall

Phil Hall is a former United Nations-based reporter for Fairchild Broadcast News, the author of nine books, the host of the award-winning SoundCloud podcast "The Online Movie Show," co-host of the award-winning WAPJ-FM talk show "Nutmeg Chatter" and a writer with credits in The New York Times, New York Daily News, Hartford Courant, Wired, The Hill's Congress Blog and Profit Confidential. His real estate finance writing has been published in the ABA Banking Journal, Secondary Marketing Executive, Servicing Management, MortgageOrb, Progress in Lending, National Mortgage Professional, Mortgage Professional America, Canadian Mortgage Professional, Mortgage Professional News, Mortgage Broker News and HousingWire.
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