The good news is that home prices are appreciating at a robust rate, with most recent reports varying between 6 and 8 percent over-the-year. The bad news is that wages growth is not keeping up with home price gains, which is hindering affordability.
According to ATTOM Data Solutions’ Q4 2016 Home Affordability Index [1], based on the percentage of average wages needed to make monthly payments on a median-priced home assuming a 3 percent downpayment and a 30-year FRM, affordability in the fourth quarter was at its lowest point in eight years.
Not only that, but nearly a third (29 percent, or 130) of the 447 counties across the U.S. measured by ATTOM were below their historical affordability averages, the highest percentage since 47 percent of markets were below their historical affordability averages in the third quarter of 2009. Comparatively, only 13 percent of counties were below their historical affordability averages in Q4 2015, according to ATTOM.
“Rapid home price appreciation and tepid wage growth have combined to erode home affordability during this housing recovery, and the recent uptick in mortgage rates only accelerated that trend in the fourth quarter,” said Daren Blomquist, SVP at ATTOM Data Solutions. “The prospect of further interest rate hikes in 2017 will likely cause further deterioration of home affordability next year. Absent a strong resurgence in wage growth, that will put downward pressure on home price appreciation in many local markets.”
A rating of 100 for the affordability index indicates that affordability levels are on par with historical standards; a rating above 100 means the market (or country) is more affordable than historical benchmarks, while a rating below 100 means it is less affordable than historical norms. The national affordability index plummeted from 116 in Q4 2015 down to 103 in Q4 2016, according to ATTOM. It is the lowest level for the national affordability index since a rating of 102 was reported for the fourth quarter of 2008, right at the time of the crash.
According to ATTOM, the median home price has increased by 60 percent since hitting a trough in 2012 while the average weekly wage has risen by only 1 percent during that same period. Home price gains outpaced wage growth annually in 81 percent (363) out of the 447 counties, ATTOM reported. The share of counties in which affordability improved declined over-the-year from 26 percent down to 18 percent (81 counties).
Click here [1] to view the full report from ATTOM Data Solutions.