According to a recent report from ATTOM Data Solutions, one in every four housing markets in the United States are becoming less affordable all the time. ATTOM’s Q1 2017 U.S. Home Affordability Index indicates that nationally, consumers are finding they must spend just about a third of their income in order to purchase a home priced at the national median, but that locally many are spending far more. “[This is] not surprising given the continued strong growth in home prices combined with the recent rise in mortgage rates,” observed ATTOM senior vice president Daren Blomquist[1]. He added, “Stronger wage growth is the silver lining in this report.”
What the Data Says
According to the data, wage growth has outpaced home price growth in just over half of the markets studied for the first time since 2012, when, Blomquist noted, “median home prices were still falling nationwide.” However, this trend, as is all real estate, is highly localized. In 26 percent of the counties surveyed, a would-be homebuyer would have to spend about 43 percent of their income to purchase a median-priced home. In cases like these, the average buyer is considered to be “priced out” of the market, and in some areas, including a number of California and New York counties, buyers must spend nearly 100 percent or more than the median income in order to buy a median-priced home.
These types of reports are important for real estate investors because investment strategies generally rely on a population of buyers or renters in order to generate returns either in the form of cash-flow or profits upon sale. Housing affordability in a given area plays a large role in the mindset of those who would rent or buy. For example, in a county like Clayton County, Georgia, where average wage earners might spend only about 11 percent of their income purchasing a home[2], the sentiment in the area may be shifting from one of renting, (Clayton has topped rental returns lists for multiple years now) to buying, which should inform investment decisions in the area. However, investors must also remember that lower-priced homes may be difficult to finance, which could keep a population that wishes to buy in rentals instead.
[1] http://www.dsnews.com/daily-dose/03-30-2017/homebuyers-hindered-affordability
[2] https://www.attomdata.com/news/heat-maps/home-affordability-index-q1-2017/
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Carole Ellis is the editor for Think Realty Magazine. She can be reached at cellis@thinkrealty.com.
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