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Homeownership Affordability Took A Hit In Q4 2020

Navi Persaud
Jan 04, 2021
Photo of an open wallet with money coming out of it.

While lower mortgage rates helped make it easier for many to purchase a new home in 2020, a report from ATTOM Data Solutions revealed that median home prices of single-family homes and condos in Q4 2020, were less affordable than historical averages in 55% of counties with enough data to analyze. This is up from 43% a year ago and 33% three years ago.

ATTOM determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes and insurance — on a median-priced home, assuming a $100,000 loan and a 28% maximum "front-end" debt-to-income ratio, according to a press release. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics.

Compared to historical levels, 275 of the 499 counties analyzed in the fourth quarter of 2020 were less affordable than past averages, up from 217 of the same group of counties in the fourth quarter of 2019 and 164 in the fourth quarter of 2017, according to the report. The fallback came as continued spikes in median home prices of at least 10% over the past year in most of the country outpaced the impact of increasing wages and declining mortgage rates to historic lows. Price increases occurred as the U.S. housing market kept booming despite economic troubles related to the ongoing Coronavirus pandemic.

"Owning a home in the United States slipped into the unaffordable zone for average workers across the nation in the fourth quarter as the numbers continued a year-long slide in the wrong direction. The latest housing market data shows the average worker unable to meet the 28 percent affordability guideline used by lenders," said Todd Teta, chief product officer with ATTOM Data Solutions. "That's happened as home prices have continued rising throughout 2020 and the housing market has remained remarkably resilient in the face of the brutal economic fallout from the Coronavirus pandemic. The future remains wholly uncertain and affordability could swing back into positive territory. But for now, things are going in the wrong direction for buyers."

The report also noted that home prices are up at least 10% in more than three-quarters of the country and price appreciation is up more than wage growth in more than 90% of markets. Additionally, annual wages of more than $75,000 were needed in the fourth quarter of 2020 to afford the typical home in 124, or 25 percent, of the 499 markets in the report.

Click here to read more from the ATTOM Data Solutions report.

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