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Home Affordability Report Shows Increased Pressure for Affordable Housing

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Home Affordability Report Shows Increased Pressure for Affordable Housing

Housing affordability continues to be a hot topic, as demand for homes outpaces supply and wage growth fails to keep pace with home-price appreciation 


By ATTOM Data Solutions January 28, 2022
Housing affordability downward trend
According to the ATTOM U.S. Home Affordability Report, U.S. housing affordability continues to trend downward. | Photo: Flickr user woodleywonderworks (CC by 2.0)
This article first appeared in the February 2022 issue of Pro Builder.

Unmet demand for housing continues to drive home prices higher, as median sales prices on homes in the U.S. have risen for the 10th straight year. These increases are putting pressure on affordability, which continues to trend downward (see chart, below), according to the ATTOM U.S. Home Affordability Report. In the first quarter of 2015, homebuyers on average needed just 18.4% of their wages to buy a median-priced home, but that share rose to 25.2% in the fourth quarter 2021, continuing an upward trajectory that inches closer and closer to the “unaffordable” designation at 28%—which is often the tipping point for when lenders become reluctant to issue a mortgage loan.

Housing affordability index downward trend

Without an increase in the supply of homes and condominiums for sale, this percentage may continue to grow, especially as the pandemic has many potential buyers seeking a safe place to stay and space to work from home. Historically low interest rates on mortgages, combined with rising wages, have helped keep homebuying in the affordable range (less than 28% of wages, on average) ... for now.

A key metric to keep an eye on is wage growth versus home-price appreciation (see chart, below). In Q3 2021, home prices were growing faster than wages in 78% of the counties surveyed. If that trend continues, affordability will be a serious concern for much of the country.

Home price vs. wage gains chart

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Of course, location is a critical factor in affordability. Buying a home in Kings County (home to Brooklyn), N.Y., requires 76.5% of wages for the average worker, but buying a home in Schuylkill County (outside of Allentown), Pa., requires just 6.5%. As remote work makes some segments of the workforce more mobile, demand may increase in locations where homebuying is a more affordable endeavor.

Data showing county affordability for buying a home
       
Heat map oof housing affordability index Q4 2021

 


Methodology and Respondent Information: The ATTOM U.S. Home Affordability Index analyzes median home prices and average wage data in 575 U.S. counties with a combined population of 252.6 million. The affordability index is based on the percentage of average wages needed to pay for major expenses on a median-priced home with a 30-year fixed-rate mortgage with a 20% down payment and a 28% maximum “front-end” debt-to-income ratio. “Major expenses” include property taxes, home insurance, mortgage payments, and mortgage insurance.


 

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