ATTOM Data Solutions says that median-priced, single-family homes are now less affordable than historical averages in 75% of the nation's counties with enough data for the number-crunchers to analyze.
That's up from 56% at this point last year, according to ATTOM's third-quarter 2021 U.S. Home Affordability Report. In the past year, ATTOM added, the median national home price soared 18% to a record high of $315,500.
The report adds that despite rising prices and demand, the typical home is still within the means of the average wage earner in those 572 counties, even though affordability has slumped below past averages in 430 of them -- the most in 13 years.
Home prices rising faster than wages could be changing the equation
The simple math driving affordability down: home prices rising faster than wages. ATTOM said major ownership costs on the typical home consumed 24.9% of the average national wage of $64,857 in Q3 2021, up from 24.3% last quarter and 22.3% in Q3 2020.
"Still, the latest level is within the 28 percent standard lenders prefer for how much homeowners should spend on mortgage payments, home insurance, and property taxes," ATTOM said in its report.
Todd Teta, ATTOM's chief product officer, says that "super-low" interest rates and rising wages are maintaining the equilibrium. For now.
"Affordability keeps inching in the wrong direction as the housing market boom keeps roaring ahead. That's pushing average workers closer and closer to the point where lenders might be reluctant to give them a mortgage," Teta said in the Q3 2021 report.
NAHB's affordability work adds some other perspective
Prices don't have to rise much to have a big effect. Last year, the National Association of Home Builders (NAHB) reported that for every $1,000 hike in the price of a new home, 158,857 prospective homebuyers were priced out of the market, based on their eligibility for a mortgage.
That was based on interest rates and median prices extant when the research was published in January 2020. The median price then for new construction was $344,652. In September 2021, it was $390,900. Take the difference between those two, multiply it by 158,857, and you will get something like 7.3 million households priced out of the market.
Interest rates have the same effect. The NAHB also found in 2020 that 25 basis points added to a mortgage rate at a 30-year fixed rate of 3.75% would price out around 1.3 million households. (On Oct. 12, 2021, the average rate for that loan was 3.37%. That offsets the effect somewhat, but rates can certainly head back up. Especially if inflation keeps rising.)
The Millionacres bottom line
There do seem to be several implications here for real estate investors. For one, fewer buyers could eventually lead to a cooling residential market as supply starts nearing equilibrium with demand.
One also must wonder about the possible effect of many people stretching themselves too thin to get a mortgage, especially in a turbulent job market. After all, affordability issues were a big part of the housing bubble that burst cataclysmically as the Great Recession took hold a dozen years ago or so.
Note: Bye Bye Housing Boom? What's an Investor to Think? and What Goes Up Must Come Down -- Or Must It? offer several takes on why things are different this time around.
And then there's the effect on the rental market. People who can't buy must rent. And the mortgage tax deduction is not so attractive for many, given the big standard deductions now in place.
Those are just two reasons investments in multifamily and single-family rentals alike are so gangbusters right now. The American Dream just might be changing shape before our eyes.