Home buyers have been feeling the pinch of rising prices for more than a year, but now higher mortgage rates are further cutting into affordability. The first-quarter “2022 U.S. Home Affordability Report” from Attom, a property data-analytics firm, showed that the portion of wages required to buy a home grew at the fastest pace in more than 15 years between the first quarter of 2021 and the first quarter of 2022.
The median-priced home was less affordable than historical averages in 79 percent of counties nationwide during the first quarter of 2022, according to the report. That compares to 38 percent of counties that were historically less affordable during the first quarter of 2021 and represents the highest point since mid-2008.
Affordability is determined by Attom’s researchers as a comparison of the average income needed to pay for homeownership costs (including the mortgage payment, taxes and insurance) for a median-priced home for each county. The analysis assumes a 20 percent down payment and that the homeownership costs represent a maximum of 28 percent of the household income.
Until recently, low mortgage rates and rising wages were able to offset rising home prices, but with mortgage rates approaching 5 percent during the first quarter of the year, affordability was reduced. The median national home price rose 16 percent from the first quarter of 2021 to the first quarter of 2022 to a record high of $320,000. During the same period, average wages rose just 7 percent.
While in the near-term housing affordability has deteriorated and the housing shortage continues to be an issue, particularly for entry-level homes, a recent report from First American Financial Corporation, a provider of real estate settlement and risk solutions, shows that housing is actually more affordable today than it was in the 2006 housing market peak.
The First American Real House Price Index (RHPI) measures price changes of single-family homes in the United States adjusted for the impact of income and interest rate changes to determine house-buying power.
In January, First American’s analysts found that adjusted house prices remain 29 percent below the peak in April 2006 because of the combination of higher wages and lower mortgage rates. Household incomes are nearly 48 percent higher today than in April 2006, according to Mark Fleming, the chief economist at First American. The average mortgage rate is more than three percentage points lower than in April 2006, too.
According to First American’s analysis, nationally homes are 34 percent more affordable today than in April 2006 on average.
D.C. and Baltimore are the cities where affordability has improved the most since April 2006, both 53 percent more affordable. The other top three cities where affordability has improved since the peak include Chicago (52 percent), Miami (50 percent) and Riverside, Calif. (48 percent).
Affordability has improved the least since the housing market peak in Nashville (0.3 percent from the peak), Buffalo (3 percent), Denver (9 percent), Kansas City, Mo. (12 percent) and Salt Lake City (15 percent).