As housing values inch their way up ever so slowly and the real estate market begins to recover, higher prices may actually make it a bit harder for some Americans to qualify for a home.
According to the National Association of Home Builders (NAHB)/ Wells Fargo Housing Opportunity Index (HOI) released in August, close to 74 percent of homes sold between April and June were deemed affordable to families who earn $65,000, the national median. That may seem like a high level of affordability in the historical sense, especially combined with current record low interest rates. But the number is actually down from 77.5 percent in the previous quarter.
According to Freddie Mac, the 30-year fixed interest rate for a mortgage decreased to 3.66 percent by the end of June, making home ownership more affordable in general.
The Housing Opportunity Index
The HOI is determined by measuring the percentage of homes sold in a given area that are considered affordable to that area’s median income during one quarter. Such housing costs are collected from court records by the marketing company First American Real Estate Solutions.
The latest HOI showed that 92 percent of metros had a rise in median home prices between the first and second quarters of 2012. This increase, while an excellent sign for an economy hit hard by lost equity, may impact housing affordability for people in high-cost cities.
The Least Affordable Housing Markets
White Plains, New York, maintained the title of least affordable major housing market in the country for the 17th quarter in a row. Less than 30 percent of homes sold in the area are considered affordable to those earning the area’s median income of $68,300.
Wayne, New Jersey, was a close second. Other metros that top the chart for least affordable include several California cities: San Francisco, San Mateo, Redwood City, Santa Ana, Anaheim, Irvine, Los Angeles, Long Beach and Glendale. Housing in Connecticut cities such as Bridgeport, Stamford and Norwalk are also considered too pricey compared to the median income of $87,100, making only 43.3 percent of homes affordable.
The Most Affordable Housing Markets
The most reasonably priced major housing markets in the second quarter were Youngstown, Ohio, Warren, Ohio, and Boardman, Pennsylvania. In these areas, more than 93 percent of homes were affordable to people bringing in the cities’ median income of $55,700. Other affordable major housing markets include: Dayton, Ohio; Buffalo, New York; Niagara Falls, New York; Indianapolis, Indiana; Carmel, Indiana; and Modesto, California.
Fairbanks, Alaska, topped the affordability chart among smaller housing markets: 98.7 percent of sold homes were affordable to households earning the area’s median income of $92,900.
National Association of Realtors chief economist Lawrence Yun said he believes housing affordability conditions are very good. Low mortgage interest rates and increased rental rates have helped unleash a demand for housing. Unfortunately, he added, unnecessarily tight lending standards and a shrinking inventory have constrained the market.
While economists are hopeful the increase in housing prices ultimately indicates a strengthening real estate market, the fact that wages remained stagnant during the same time period could affect how many people are able to purchase a house. A healthy real estate market with increased home values will require a simultaneous increase in income for potential homeowners to continue to grow.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- Christie, L. (2012, August 14). Survey says: Fewer affordable homes. CNN Money. Retrieved from http://money.cnn.com/2012/08/14/real_estate/affordable-homes-prices/index.html
- National Association of Home Builders (2012, August 14). Rising Home Prices Push Affordability Slightly Lower In Second Quarter. Retrieved from http://www.nahb.org/news_details.aspx?newsID=15477
- National Association of Realtors (2012, August 22). Existing-Home Sales Improve in July, Prices Continue to Rise. Retrieved from http://www.realtor.org/news-releases/2012/08/existing-home-sales-improve-in-july-prices-continue-to-rise
- National Association of Home Builders. NAHB/Wells Fargo Housing Opportunity Index (HOI): 2nd Quarter 2012. Retrieved August 29, 2012 from http://www.nahb.org/hoi