Home prices that continue to appreciate faster than wages are eating away at housing affordability in more and more local US markets, a new RealtyTrac report suggests.
In the first quarter of 2015, 43 of the 456 US counties the real estate firm analyzed had a median home price that was less affordable than its historic norm, based on data going back to early 2005. These counties make up a 9 percent share of all markets tracked, up 7 percentage points from just a year ago.
“While the vast majority of housing markets are still affordable by their own historic standards, home prices are floating out of reach for average wage earners in a growing number of US housing markets,” said RealtyTrac’s VP Daren Blomquist in a statement.
“The recent drop in interest rates has helped to soften the blow of high-flying price appreciation in some markets, but the affordability equation could change quickly if interest rates trend higher and home prices continue to rise faster than wages,” he added.
Based on numbers in RealtyTrac’s affordability index, which looks at the percentage of average wages one would need to cover monthly payments on a median-priced home, Wayne, Michigan, a county which includes Detroit, is the most affordable market in the country.
In Wayne, you’d only need to fork over 8.5 percent of the average wage earned in the area to finance the median-priced home, which cost $61,000 in Q1.
Wayne measures 124 on the affordability index. An index of 100 represents what the affordability level was in a given market during the first quarter of 2005. Any index greater than 100 suggests a market is more affordable today than it was then.
RealtyTrac pulls average wage data from the US Bureau of Labor Statistics alongside public home sales records when considering a local market’s affordability. It also assumes a 30-year fixed rate mortgage with a 3 percent down payment (property taxes and insurance are also included in calculations).
As a market’s index only compares its current figures to its past performance, the best way to compare one market to another is by looking at what share of average wages are needed to afford the median-priced home, a RealtyTrac spokesperson points out.
In these terms, then, the least affordable market was Kings County, New York, where it would take 120.4 per cent of the average earner’s income to afford the median-price home, which cost $679,500. Kings County has identical boundaries to the borough of Brooklyn.
Across all 456 markets, which together have a population of 221 million, home prices were rising faster than wages in 276 counties, or 61 percent of them.
Nationally, it took 30.2 percent of the average monthly wage in the first quarter of 2016 to finance a median-priced home, which cost $199,000. That wage share is an increase from the 26.4 per cent it would’ve taken average earners to finance a home in early 2015.
Here are the 10 most (and least) affordable US housing markets for average earners:
