Skyrocketing home prices have now made buying a single-family home or condo less affordable than historical averages in well above half the country, according to a new report from ATTOM Data Solutions.
In its second-quarter 2021 U.S. Home Affordability Report, the property database and analytics firm said median home prices have now reached that point in 347 of 569 (or 61%) counties nationwide with enough data to analyze.
That was up from 48% in Q2 2020, as home prices spiked 22% during the same period to a median national home price of $305,000, ATTOM said in its report.
"Average workers across the country can still manage the major expenses of owning a home, based on lender standards. But things have gone in the wrong direction this quarter in a majority of markets as the national housing market boom roars onward," Todd Teta, ATTOM chief product officer, said in the report.
Still manageable for most, but getting less affordable
ATTOM's number-crunchers determine affordability by assuming a 20% down payment and the lender-preferred maximum debt-to-income ratio of 28%. Then, based on average weekly wage data from the federal Bureau of Labor Statistics, they calculate how much income is needed to meet that in each county.
This quarter's report finds major ownership costs for a typical home require 25.2% of the average national wage of $63,986 -- that's up 3.5 percentage points from the first three months of this year and at the highest rate since Q3 2008, at the onset of the Great Recession.
Prices, of course, are being driven by intense demand and limited supply. "The surge has come amid rock-bottom home-mortgage rates and a desire of many households largely untouched by the financial damage caused by the worldwide coronavirus pandemic to seek the relative safety of a house and yard and more space for developing work-at-home lifestyles," the report said.
And while persistently rock-bottom interest rates are helping to cushion the impact of rising prices on mortgage affordability, that may not be enough "to prevent the cost of homeownership from getting closer to the unaffordable benchmark," the report stated.
The Millionacres takeaway
"While super-low mortgage rates have certainly helped in a big way, prices have simply shot up too much to maintain historic affordability levels. The near future of affordability remains very uncertain, as it has throughout the pandemic. … For the moment, the situation is a mix of positive and negative trends," said Todd Teta, ATTOM's chief product and technology officer.
Of course, affordability is in the eye of the beholder -- in this case, the borrower and the lender. The financial crisis that began more than a decade ago included vast waves of foreclosures that followed sudden joblessness for millions of people. And mortgages that were underwritten with looser standards are presumably being enforced now.
So far, indications are that there's no foreclosure tidal wave in sight, but it's worth keeping an eye on any ripple that could grow into a serious problem for real estate investors in this supercharged market.
After all, a housing market needs people who can afford that housing to remain sustainable, much less grow.