Single-family homes and condos are less affordable in the second quarter and prices are up at least 10% from last year, according to ATTOM's Home Affordability Report.
According the report, 97% of counties across the U.S. are less affordable in 2022 compared to 69% reported in the second quarter of 2021. This is the highest point since 2007, just before the housing market crashed during the Great Recession of the late 2000s.
The report also revealed that the portion of average wages nationwide required for major home-ownership costs has risen this quarter to 31.5%, parallel with the median price of a single-family home that has hit a new high of $349,000. To top it off, 30-year mortgage rates have shot up above 5%.
“Extraordinarily low levels of homes for sale combined with strong demand have caused home prices to soar over the last few years,” Rick Sharga, executive vice president of market intelligence at ATTOM, said. “But homes remained relatively affordable due to historically low mortgage rates and rising wages. With interest rates almost doubling, homebuyers are faced with monthly mortgage payments that are between 40% and 50% higher than they were a year ago — payments that many prospective buyers simply can’t afford.”
Affordability Continues To Decline
This is the 11th year that home costs in the U.S have roared. One major force remains: home prices have continued to soar in 2022 as a large cohort of homebuyers continue chasing an extremely small supply of properties for sale. As a result, the median home price for single-family homes and condos is up by at least 10%.
The report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly home ownership expenses — including mortgage, property taxes and insurance — on a median-priced single-family home, assuming a 20% down payment and a 28% maximum “front-end” debt-to-income ratio.
Compared to historical levels, median home prices in 560 of the 575 counties analyzed in the report are less affordable than in the past. Decreases in affordability have continued as the median home price has spiked 16% over the past year while average annual wages across the country have only grown 6%.
Major ownership costs on single-family homes and condos around the U.S. now require more than 28% of the average $67,587 wage in the U.S. The current level of 31.5% stands at the highest point since the second quarter of 2007 and is up from 26% in the first quarter of 2022.
To make matters worse, annual wages of more than $75,000 are now needed to pay for major costs on the median-priced home purchased in 232 of the 575 markets in the report, rounding out to about 40% of counties.
Buyer’s Remorse?
As mortgage rates have steadily climbed this year from just above 3% to near 6% for a 30-year loan, costs have escalated for buyers beyond home-related rates. Soaring fuel costs and a declining stock market also threaten the housing market, which could already be showing signs of stress — May marked the fifth consecutive month of lower existing home sales than the prior month.
“Worsening affordability appears to be having an impact on demand, which could lead to prices plateauing or even correcting modestly in some markets,” Sharga noted. ”Many potential buyers may elect to continue renting until market conditions improve. Others might adjust their sights and look for smaller properties, or homes that are further away from major metro areas. And it’s possible that worsening affordability could accelerate the migratory trends that the COVID-19 pandemic started, as residents in high cost, high tax states who can now work from home look for less expensive places to live.”
The report found that among the 575 counties in the report, 3% are more affordable than their historic affordability averages from past reports. This number is down 31% from last year.
More details can be found in the report here.
