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Home affordability continues to slide on multiple fronts

July 10, 2017

While demand for homes remains quite high these days, there may be some reason to believe that consumers are increasingly concerned with the rate at which affordability is dropping. While rates remain fairly low, rapidly rising home prices and other considerations have come together to create what may be a difficult situation for many would-be buyers.

Through the end of the second quarter, the median home price in the U.S. was about $253,000, the highest level seen in almost nine years, according to a report from ATTOM Data Solutions. However, it's worth noting that the overall home affordability index came in at a reading of 100, which indicates conditions are exactly in line with historical norms. Moreover, affordability isn't distributed evenly nationwide, and it's therefore worth noting that 45 percent of all counties across the U.S. were less affordable than historical averages.

"Conditions are exactly in line with historical norms."

What's the issue?
Part of the reason for the affordability problem is that home prices are growing much more quickly than consumers' pay, the report said. This was the case in 87 percent of markets examined, and overall home prices were up 7.7 percent on an annual basis while weekly wages actually fell 1.4 percent over the same period. At this point it takes the average buyer at least 43 percent of their pay to buy a home in nearly one-third of all markets.

"While home price appreciation in the second quarter accelerated to the fastest pace in more than three years, wage growth turned negative, posting the biggest year-over-year decrease in five years in Q4 2016 - the most recent average weekly wage data available," said Daren Blomquist, senior vice president at ATTOM Data Solutions.

Other considerations
Another potential issue for would-be buyers these days is the fact that many may face uncertainty about the mortgage rates available to them. According to the latest data from the Mortgage Bankers Association, the average 30-year fixed-rate home loan carried a rate of 4.2 percent in the week ending June 30, up slightly from the previous week's 4.13 percent and the highest level observed since May.

"Rate uncertainty may give shoppers pause in today's market."

While rates remain well below all-time and pre-recession averages, that fact may nonetheless give shoppers pause in today's market. While the number of purchases filed across the U.S. was up 3 percent on an unadjusted basis from the previous week, it was only 6 percent higher than year-ago levels, the MBA said.

Add in the fact that in most parts of the country, competition for a relatively small number of homes up for sale is continuing to heat up as more shoppers begin to bid for properties, and it's easy to see why prices are rising, according to Marketplace. Right now, many owners simply refuse to put their homes up for sale despite ever-growing prices. Builders likewise cannot put homes up quickly enough to meet that high demand soon.

Generally speaking, consumers should do more to increase the size of their down payments and improve their credit so they can get access to better rates, which can dramatically improve individual affordability. Doing so may help them save tens of thousands of dollars over the life of a loan.




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