Despite economic growth and a national unemployment rate below 5 percent, the typical U.S. family still faces significant trouble buying a home.
It’s no wonder, given how expensive houses are getting, particularly in desirable markets where inventory leads to price wars and newer buyers in particular get shoved to the margins. According to U.S. Department of Commerce and the National Association of Realtors, a typical new home costs upwards of $321,000, while the typical existing home costs more than $232,000.
Now factor in recent Zillow data indicating that the minimum income required for a mortgage payment on a median-valued home in most metro areas across the United States rose by 12 percent (from $49,752 to $55,753) between Q1 2009 and Q1 2016, and the affordability issue takes on greater meaning.
According to Fannie Mae, while the number of cost-burdened owner households (owing at least 30 percent on a home) is falling, the number of cost-burdened renter households is increasing, suggesting the nature of the affordability challenge may be changing.
In many markets, Zillow recently reported, renters often do have the income and credit scores to afford a median-priced home in their markets, but are often choosing to rent for lifestyle reasons. The percentage of renters in a position to buy is about 14 percent. The remainder are likely not buying due to affordability, particularly in markets such as New York City.
One of the issues making affordability tough to measure, according to Fannie Mae, is how metrics are taken. Household metrics tend to look at housing cost-to-income ratios and income left over after mortgage payments are made. But these metrics aren’t optimal.
“Household-level metrics reflect personal choices consumers have made—buying a larger home to accommodate a growing family, for instance,” Fannie Mae reported Friday. “This may create difficulty in the short term, but may be a rational choice if the buyer expects the home to be affordable over the long term.”
Better, Fannie Mae argued, is to determine what percentage of potential homeowners in a typical market can afford the median-priced home, though even this method has drawbacks. They do not account for the diverse nature of homebuyers and the home buying process and are typically not seasonally adjusted to account for the differences between new and existing homes.
But if measuring affordability proves difficult, one thing remains clear: buying a home is expensive and will continue to be a challenge for a long time.