Affordability worsening in the US housing market despite wage growth

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Published - Apr 25, 2018 5:10 AM

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Housing affordability is worsening across the United States and fewer households can afford the kind of homes currently for sale on the market based on their income, according to research from realtors.

The study published by the National Association of Realtors (NAR) reveals that Hawaii has the lowest affordability score based on calculations using prices, mortgage figures and income data.

The next lowest is California, then Oregon, Columbia, Montana and Rhode Island. In these areas, households at the median income level can afford only 19% to 23% of homes on the market.

The most affordable homes are found in Ohio, followed by Indiana, Kansas, Iowa and West Virginia. In these areas, a typical household can afford 54% to 62% of the active housing inventory currently on the market.

According to Lawrence Yun, NAR chief economist, there is a notable imbalance between what potential home buyers can afford and what is listed for sale. ‘The survey confirms that the lack of entry level supply is putting affordability pressures on too many buyers, especially those at the lower end of the market, where demand is the strongest,’ he said.

‘This is why first time buyers continue to struggle finding affordable properties to buy and are making up less than a third of home sales so far this year,’ he added.

The affordability score overall decreased nationally from 0.86 to 0.84 between March 2017 and March 2018, which Yin said is because of rising prices across the country and a spike in mortgage rates.

However, 14 states had better affordability compared to a year earlier, with the greatest increase in affordability in Columbia, Vermont, Hawaii and North Dakota while 35 metro areas had better affordability compared to a year earlier, led by Austin-Round Rock in Texas, Syracuse in New York, North Port-Sarasota in Florida and Palm Bay-Melbourne in Florida.

‘We’ve seen affordability improve as inventory declines have begun to lessen these areas. More balanced supply and demand dynamics have kept listing price growth below the national average, providing some much needed relief for stretched home buyers in these areas,’ said Danielle Hale, chief economist for realtor.com.

Yun explained that while wage growth is welcome news for prospective buyers, prices are increasing at a faster rate, up almost 6% in the first two months of 2018. ‘Solutions to improve these conditions include more home owners selling, investors releasing their portfolio of single family homes back onto the market and more single family housing construction,’ he pointed out.