Myth or Reality?

Housing Affordability Crisis

By Erica Rascón on Jun 27, 2018 in News

Conflicting research has many housing professionals—and house hunters—wondering if the nation has reached an affordability crisis or not. There are a few factors that influence why reputable sources are coming up with such different perspectives.

Is there an affordability crisis?

First American Financial Corp says no. A recent research summary posits that while home prices and mortgage rates have been increasing, the nation isn’t near crisis mode.

CoreLogic’s Home Price Index reports that home prices increased 7 percent year-over-year. The Primary Mortgage Market Survey issued by Freddie Mac shows the recent mortgage rate has increase to its highest since 2013.

First American Financial Corp suggests that the nation is not in crisis mode because while home prices and mortgages rates have increased, incomes have also increased. Most states have reached income levels that exceed their 2007 peak. Many incomes are higher than they’ve been in more than a decade.

The organization’s conclusion: there is no crisis, just a casual decrease in affordability.

Additional factors

It’s not just home prices, mortgage rates, and incomes we must consider.

Non-housing cost of living increases play a practical role in housing affordability for households. These costs have been rising for most of the nation, with six cities experiencing the steepest increases.

GOBankingRates lists Atlanta; Denver; Eugene, Ore.; Nashville; Portland; and Seattle as cities with the highest spikes in non-housing cost of living. Healthcare, groceries, transportation and utilities are among the expenses that consume residents resources and contribute to the inability to afford housing.

While incomes have increased over the years, housing costs have increased faster. The rising cost of non-housing expenses make affordability more challenging. An earner spends 29.1 percent of their income on a median-priced home. The established recommendation for affordability is 30 percent of income, which brings the average wage earner woefully close. When combined with the rising cost of living—meaning more cash towards health, food, clothing, and utilities–people have less cash to allocate towards housing. They also have less wiggle room to stretch when local properties exceed 30 percent of their income.

When factoring in cost of living changes, ATTOM Data Solutions reports that 41 percent of the markets studied are less affordable than historic averages. Median home prices were not affordable for 68 percent of wage earners.