RealtyTrac has released its housing affordability analysis showing that the estimated monthly house payment for a median-priced three-bedroom home purchased in the fourth quarter of 2013 — including mortgage, insurance, taxes, maintenance, and subtracting the estimated income tax benefit — increased an average of 21 percent from a year ago in the 325 U.S. counties included in the analysis. The rise in monthly housing payments came as the result of an average 10 percent rise in median prices across the 325 counties combined with a 33 percent increase in the average interest rate for a 30-year fixed rate mortgage as reported by Freddie Mac in its Primary Mortgage Market Survey (PMMS).
“A potent combination of rapidly rising home prices and the often-overlooked but significant uptick in interest rates in the second half of 2013 caused the monthly cost of owning a home using traditional financing to jump substantially in many markets over the last year,” said Daren Blomquist, vice president at RealtyTrac. “The monthly cost of owning a home is still less than renting in the majority of markets, but the cost of financed homeownership is becoming dangerously disconnected with still-stagnant median incomes, driven not by shoddy underwriting practices this time around but by investors and other cash buyers who are not tethered to the typical affordability constraints.
“One simply needs to look at the minimum income needed to qualify for a median-priced home in some markets to realize the extent of the disconnect between prices and incomes,” Blomquist continued. “For example, in Los Angeles County, the minimum qualifying income needed to purchase a median-priced home is at more than $95,000, up from about $68,000 just a year ago.”
"Home price appreciation continues to climb in the Oklahoma housing market, and in some instances deters people from buying a house, forcing them to rent, especially given the new mortgage rules that took place in the beginning of 2014," said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty covering the Oklahoma City and Tulsa, Okla., markets. "The American dream of owning a home still stands though, so potential homeowners will try to buy as soon as they can."
Despite the increase in costs to buy with financing, the analysis shows that the estimated monthly house payment for a median-priced three bedroom home in the fourth quarter of 2013 was lower than average fair market rent for a three bedroom home — set by the U.S. Department of Housing and Urban Development for 2014 — in 91 percent of the counties analyzed (296 out of 325).
But the 29 counties where estimated monthly house payments were higher than fair market rents accounted for 20 percent of the population for all 325 counties analyzed. These 29 counties included the California counties of Los Angeles, Orange, Santa Clara, Alameda, Ventura and San Francisco, along with King County, Wash. (Seattle), Suffolk County and Westchester counties in the New York City region, Will County in the Chicago metro area, and Denver County, Colo.
Among the 15 most populated counties analyzed the estimated monthly house payment increased an average of 34 percent from a year ago, making the house payments higher than the average fair market rent for a three-bedroom home in six of those 15 largest counties. A year ago only one of those 15 counties — Santa Clara County in the San Jose area of Northern California — had an estimated monthly house payment above the average fair market rent.
Other high-level findings from the report:
►Based on a 30-year fixed rate mortgage with an interest rate of 4.46 percent and a 20 percent down payment, the average monthly house payment across all counties for three-bedroom homes purchased in the fourth quarter of 2013 was $865, up from $714 for homes purchased in the fourth quarter of 2012 — based on a 3.35 percent interest rate a year ago.
►Counties with some of the biggest increases in estimated monthly house payments included Contra Costa and Sacramento counties in California (both up more than 50 percent), Wayne and Oakland counties in Michigan (both up more than 45 percent), and Clark County, Nev. (up 43 percent).
►Across all 325 counties, the average minimum household income needed to qualify for a median-priced home in the fourth quarter of 2013 was $41,544, up from an average minimum income of $34,262 in the fourth quarter of 2012. The minimum qualifying income was based on no more than 25 percent of household income going to the monthly house payment.
►Counties with the highest minimum qualifying incomes were San Francisco County, Calif. ($228,569), Marin County, Calif., ($177,922), San Mateo County, Calif. ($170,284), Arlington County, Va. ($158,474), Santa Clara County, Calif. ($149,389), and Hudson County, N.J. ($142,684).
►The average minimum qualifying income to rent a three-bedroom home at fair market rents for 2014 was $43,892 across all 325 counties, up from $43,527 at fair market rents for 2013. The minimum qualifying income for rents was calculated by multiplying the annual cost of rent by three.
►Counties with the biggest jumps in fair market rents on three-bedroom homes included Sumter County, S.C. (up 23 percent), Kenosha County, Wis. (up 21 percent), Alameda County, Calif. (up 16 percent), Contra Costa County, Calif. (up 16 percent), and Missoula County, Mont. (up 15 percent).