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Home affordability still constraining many markets

March 30, 2019

In recent months, the issue of home affordability has become less of a hurdle for many would-be homeowners thanks to diminishing rates of home price growth and a reversal of long-term mortgage rate increase trends. That's good news for the market as a whole, but at the same time it's worth noting that prices have been rising so quickly - and for so long - that there are a lot of metro areas where it's still not feasible for large portions of the population to try to make a home purchase.

"In 71% of markets, a median-priced home was not considered affordable."

Indeed, in 71 percent of the nation's 473 largest housing markets, a median-priced home was not considered affordable for those areas' average earners, according to the latest U.S. Home Affordability Report from ATTOM Data Solutions. This data is based on monthly mortgage costs, property taxes, homeowners insurance and other typical monthly fees, assuming a down payment of 3 percent and a maxed-out debt-to-income ratio of 28 percent.

Moreover, nearly half of all the markets examined were less affordable today than their all-time historical averages, the report said. That number was down sharply on a quarterly basis, but up from 42 percent year over year. Indeed, nearly two-thirds of markets are less affordable now than they were a year ago, thanks to the fact that home prices are still rising at higher-than-average rates.

"We are seeing a housing market in flux across the United States, with a mix of tailwinds and headwinds that are pricing many people out of the housing market, but also are creating potentially better conditions for buyers," said Todd Teta, chief product officer with ATTOM Data Solutions. "Continually rising home prices in many areas do remain a financial stretch - or simply unaffordable - for a majority of households."

A big issue
The good news for many homeowners today is that the cost of ownership is actually down over the last decade, while renters have seen no real improvement, providing significant impetus to purchase a home when possible, according to the latest County Health Rankings from the Robert Wood Johnson Foundation. However, there may be a significant issue because of those renting realities: about 1 in 9 households spend more than half their income on housing, and that issue is substantially more prominent for renters, meaning it's also far more difficult for them to build up the finances needed to make a purchase.

Indeed, when renting households in particular face those kinds of cost burdens across entire counties, there are also increased rates of child poverty, food insecurity and worsening health outcomes, the study found.

What's being done?
To that end, more major cities - especially the ones where home price increases have been particularly large in recent years - are doubling down on their efforts to provide affordable housing to residents. In Boston, for example, 546 affordable housing units were completed over the course of 2018 alone, and many more are under construction across the city at this time, according to city data.

While that may not seem like a particularly large amount given the size of Boston's population, it's worth noting that only about 2,050 affordable units were created under the city's requirements from 2000 to 2017, the data showed. That meant Boston saw an affordable unit increase of more than a quarter in a single year. Of those affordable units, 75 percent were set aside for renting, and 25 percent for homeownership.

Getting more done
Of course, the rate at which homes are going up across the country these days is also an encouraging sign for further flattening of price increases, according to Bloomberg. In large part due to falling mortgage rates that make buying more affordable as a long-term proposition, builders are seeing more profits these days and putting up more homes. The latter effort obviously helps to address the biggest prevailing issue behind home price increases in recent years: a lack of available inventory for purchase.

"Orders for newly built homes increased 24%."

Coupling those facts with the economy that is still generally improving, it seems that the outlook for purchases of newly built homes is strong for the spring and summer, the report said. The homebuilding giant Lennar Corp. reported that it saw orders for newly built homes increase 24 percent on an annual basis in the three-month period ending on Feb. 28. There are concerns among some buyers, however, that making a purchase now might not be advisable because they think current prices may be the market reaching its peak.

"We clearly saw traffic and sales accelerate through the first quarter as strong employment wage growth, higher participation rate, consumer confidence and
economic growth - drove the consumer to return to a more affordable housing market," Stuart Miller, executive chairman at Lennar, said on a conference call, according to Bloomberg.

They might be right
The belief that the market has peaked - or will do so soon - may have been reflected in the latest data from S&P Dow Jones Indices. The S&P CoreLogic Case-Shiller Indices for January showed that home prices made the smallest annual growth since April 2015, at just 4.3 percent. In the final month of 2018, the growth rate had been 4.6 percent. Moreover, the slowdown seems to be driven by larger cities, which have been among the busier markets for some time; both the 10-City and 20-City composites posted much lower annual gains and larger drops on a month-over-month basis from December 2018.

David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, noted that in 16 of the nation's 20 major cities the index examines, there was a decline in year-over-year price appreciation. Coupled with the fact that mortgage rates are indeed falling, that could be good news for home sales figures for the remainder of 2019. Blitzer noted, however, that how much and how long those trends last "remains to be seen."

When thinking about making a home purchase, it's vital for would-be buyers to get as much help as possible from professionals who have helped ferry many people in a similar situation through the process. That means working closely with a real estate agent and mortgage lender to find the best possible situation based on their unique financial and personal needs. That, in turn, may help them find the most affordable deal available in the market today.




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