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Rising Incomes Impacting Affordability

Arch MI concluded that housing isn’t as expensive as previously thought, as the average household income has grown 28% since 2012 while the Federal Housing Agency reports home prices have risen 46% during the same time period. 

The percent of median income needed to afford an average monthly payment is nearly 10% lower in Q3 2019 than it was during Q4 2006—29% compared to 38%, respectively. The average from 1986 to 2004 was 34% and that average fell to 23% during Q4 2012. 

According to the National Association of Realtors, the median-existing home price in U.S. is nearly $271,000. Using a 90% loan-to-value loan, the monthly mortgage payment would be around $1,600—nearly 29% of the average household’s $5,400 monthly income. 

This is better than the 34% average from 1987-2004. Monthly payments, however, would have been the same to buy a home in 2006 but affordability is better now because of higher income. 

California is home to the worst price bubble in the nation as it currently takes almost 50% of monthly income to afford a monthly payment on a median-priced home. This is a considerable drop from the nearly 80% ratio needed during Q4 2006. 

Texas had one of the best pricing bubbles, as just more than 20% of income is needed to make a monthly payment on an average home during Q3 2019. 

Analysis from MyMove found that while the average rate for a 30-year fixed-rate mortgage is near historic lows, the National Association of Realtors found home purchases fell 1.7% in 2019.

One of the factors studied is the correlation between income and mortgage rates—more specifically the difference 1% can make. 

Working under the assumption a mortgage payment was $1,000 on a $360,000, a consumer would pay $33,233 in interest with a mortgage rate of 3.65%. The total amount of interest paid skyrockets to $101,936 if the mortgage rate grows by just 1% to 4.65%. 

The good news, the report found, is that the American consumer is making more money than ever before—$89,930. Home prices, however, are growing at a faster rate than income. 

MyMove reports that the average sales price for a home last year was $377,500—growing by more than $100,000 since the start of the decade. 

About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.
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