A recent study from First American takes a look at the trends shaping affordability, specifically for first-time home buyers. According to the Outlook Report, titled “Why Everything You Know About First-Time Home Buyer Affordability Is Wrong,” less than half of the markets studies were deemed “affordable.”
“As millennials continue to age into their prime home-buying years, first-time home buyer demand is poised to increase in the years ahead. Yet, traditional measures of affordability are skewed toward existing homeowners who, by definition, can already afford homes,” said First American Deputy Chief Economist Odeta Kushi. “Unlike typical affordability studies, we’ve zeroed in on first-time home buyers and factored in often overlooked costs like private mortgage insurance and property taxes to provide a clearer assessment of the housing affordability landscape for first-time home buyers.”
“As the surge of millennial demand begins to hit shore, millennial first-time home buyers may want to consider cities that offer a greater supply of affordable homes for median renters,” says First American Chief Economist Mark Fleming.
First American states that many first time homebuyers should avoid some of the traditional measures of home affordability, noting that affordability goes beyond buying power. For example, the report notes that current metrics of affordability include current homeowners, skewing the results as existing homeowners typically have greater income levels.
Additionally, First American notes that homes are already affordable for approximately two-thirds of Americans because 64.8 percent of Americans own homes, meaning any affordability metric to include existing homeowners would be misleading.
First American defines affordability by city as the media renter being able to afford 50% of available homes for purchase, and renters in the bottom 10 percent of house-buying power should be able to afford at least 10 percent of the homes for sale in their market. Memphis, Tennessee tops First American’s list of affordable cities for current renters, with 71% of homes currently affordable for the median renter in the city. Meanwhile, Los Angeles falls last on the list, with just 4% of homes currently affordable for the median renter in the city.