Housing Costs Are Rising Faster Than Incomes, Study Finds

Homes are unaffordable in more American cities than any time since the recession began, and housing costs are rising far faster than incomes, according to a study released Thursday by ATTOM Data Solutions.

During the third quarter of 2016, 24% of U.S. counties were less affordable than historic averages, up from 19% one year ago, the firm said; that’s the highest rate since the third quarter of 2009.

Ironically, affordability increased in the nations’s most-expensive areas, such as Northern Virginia and Brooklyn, N.Y. — probably because years of high price growth have finally started to level off, the report found.

The study uses an affordability index to measure whether homes for sale are more or less affordable relative to incomes. The index is based on the percentage of average wages needed to make monthly mortgage payments on a median-priced house with a 30-year fixed rate and a 3% down payment, including property taxes and insurance.

The report found that 101 of the 414 counties analyzed had an affordability index below 100. That means a median-priced home in that county was less affordable than the historic average for that county, as determined by ATTOM, the report said.

“The improving affordability trend we noted in our second quarter report reversed course in the third quarter as home price appreciation accelerated in the majority of markets and wage growth slowed in the majority of markets as well as nationwide, where average weekly wages declined in the first quarter of this year following 13 consecutive quarters with year-over-year increases,” Daren Blomquist, senior vice president at ATTOM Data Solutions, said in a press release. “This unhealthy combination resulted in worsening affordability in 63% of markets despite mortgage rates that are down 45 basis points from a year ago.”

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The counties whose prices are less affordable than their historic averages include:

Harris County (Houston), Texas
Kings County (Brooklyn), New York
Dallas County, Texas
Bexar County (San Antonio), Texas
Alameda County, California, near San Francisco

Meanwhile, affordability improved in 153 counties (37%), including pricey spots like Marin County, California, in the San Francisco Bay Area and Arlington, Virginia (5%).

“Some silver lining in this report is that affordability actually improved in some of the highest-priced markets that have been bastions of bad affordability, mostly the result of annual home price appreciation slowing to low single-digit percentages in those markets” Blomquist continued. “This is an indication that home prices are finally responding to affordability constraints — a modicum of good news for prospective buyers who have been priced out of those high-priced markets.”

But that good news ends there. Any relief provided by improvement in household wages, as suggested by the recent Census report, was overwhelmed by housing price increases. “Annual growth in median home prices outpaced wage growth in 368 of the 414 counties (89%) included in the analysis,” the report said.

This is on trend: Since the beginning of 2012, median home prices nationwide have increased 60% while average weekly wages have risen just 6%, ATTOM said.

Buying a Home

Prospective homeowners may have little control over housing prices in their area, but a substantial down payment can help you save over the life of your mortgage. So can a good credit score, since it generally entitles borrowers to the lowest interest rates. (You can see where your credit stands by viewing your free credit report summary, updated every 14 days, on Credit.com.) If your credit needs to be polished, you can improve your scores by paying down high credit card balances, disputing any errors on your credit report and limiting new credit inquiries until your standing rises. You can also potentially cut back on the costs of a home by negotiating a good price. You can go here to learn more about how to do so.

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