Up From 5 Percent of Markets in Previous Quarter, But Down From 20 Percent a Year Ago;
Wages Rose Faster Than Home Prices in 55 Percent of Markets, Reversing Four-Year Trend;
IRVINE, Calif. – June 23, 2016 — RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its Q2 2016 Home Affordability Index, which shows that 18 percent of U.S. county housing markets were less affordable than their historically normal levels in Q2 2016, up from 5 percent of markets in the previous quarter but down from 20 percent of markets exceeding historically normal home affordability levels a year ago.
The report analyzed median home prices derived from publicly recorded sales deed data collected by RealtyTrac and average wage data from the U.S. Bureau of Labor Statistics in 417 U.S. counties with a combined population of nearly 210 million. The affordability index was based on the percentage of average wages needed to make monthly house payments on a median-priced home with a 30-year fixed rate and a 3 percent down payment — including property taxes and insurance (see full methodology below).
Out of the 417 counties analyzed in the report, 74 counties (18 percent) had an affordability index below 100 in the second quarter of 2016, meaning buying a median-priced home was less affordable than the historically normal level for that county going back to the first quarter of 2005. That was up from 22 counties (5 percent) exceeding historically normal affordability levels in Q1 2016 but down from 82 counties (20 percent) exceeding historically normal affordability levels in Q2 2015.
“Although nearly one in five U.S. housing markets was not affordable by historic standards in the second quarter, the good news is that affordability is improving compared to a year ago in the majority of markets thanks to a combination of slowing home price appreciation and accelerating wage growth, along with falling interest rates,” said Daren Blomquist, senior vice president at RealtyTrac. “The average interest rate on a 30-year fixed rate mortgage is down 37 basis points from a year ago, while annual wage growth accelerated compared to a year ago in 72 percent of the markets we analyzed and annual home price growth slowed compared to a year ago in 68 percent of the markets, including bellwether markets such as Los Angeles County, Miami-Dade County, Brooklyn, Dallas County, and San Francisco County.
“For example in San Francisco County, annual home price appreciation slowed to 2 percent in the second quarter of 2016 compared to 21 percent in the second quarter of 2015 even while annual wage growth accelerated from 5 percent to 6 percent,” Blomquist added. “Affordability constraints are beginning to rein in home price appreciation even while wage growth is gaining speed in an increasing number of markets.”
Wage growth outpaced price growth in 55 percent of counties
Annual wage growth outpaced annual home price growth in 228 of the 417 counties analyzed (55 percent), including Miami-Dade County, Florida; Kings County, New York (Brooklyn); Santa Clara County, California in the San Jose metro area; Wayne County, Michigan in the Detroit metro area; and Bexar County, Texas in the San Antonio metro area.
Prior to Q2 2016, annual home price growth had outpaced annual wage growth in more than half of the 417 counties analyzed for 16 consecutive quarters going back to Q2 2012.
Annual home price growth still outpaced wage growth in 189 of the 417 counties (45 percent), including Los Angeles County, California; Cook County, Illinois in the Chicago metro area; Harris County, Texas in the Houston metro area; Maricopa County, Arizona in the Phoenix metro area; and San Diego County, California.
“Thanks to Seattle’s booming economy, the region is enjoying strong wage growth; however, not strong enough to keep up with escalating home prices,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market, where in King County annual home price growth outpaced wage growth for the sixth consecutive quarter in Q2 2016. “Even persistently low interest rates have not been enough to offset rising home prices. Unfortunately, I don’t see things changing in the near term which means there’s no relief in sight for frustrated buyers who are getting priced out of the market.”
Markets least affordable by absolute standard led by Brooklyn, San Francisco, Santa Cruz
Buying a median priced home in the second quarter of 2016 required 35.4 percent of average weekly wages on average across all 417 counties analyzed for the report.
Counties least affordable by the absolute standard of percentage of wages needed to buy a median priced home were Kings County (Brooklyn), New York (121.7 percent of average weekly wages to buy a median-priced home); Marin County, California in the San Francisco metro area (118.1 percent); Santa Cruz County, California in the Santa Cruz metro area (113.5 percent); San Francisco County, California (94.6 percent); and Maui County, Hawaii (92.8 percent).
Other counties among the top 25 least affordable by historic standards included counties in Los Angeles, Honolulu, Sacramento, San Diego, and San Jose.
Markets most affordable by absolute standard led by Atlanta, Detroit, Baltimore
Counties most affordable by the absolute standard of percentage of wages needed to buy a median-priced home were Clayton County, Georgia in the Atlanta metro area (10.4 percent of average weekly wages to buy a median-priced home); Wayne County, Michigan in the Detroit metro area (10.9 percent); Baltimore City, Maryland (11.6 percent); Bay County, Michigan in the Bay City metro area (12.3 percent); and Rock Island County, Illinois in the Davenport-Moline-Rock Island metro area (12.4 percent).
Other markets among the top 25 most affordable by absolute standards included counties in Philadelphia, Cleveland, Milwaukee, Cincinnati and St. Louis.
“Throughout much of the Ohio markets, while prices have increased due to low supply of available inventory for sale, decreasing interest rates have attributed to greater affordability in many areas,” said Michael Mahon, president at HER Realtors, covering the Ohio housing markets of Dayton, Columbus and Cincinnati. “As concerns are raised in the media over the potential of increasing interest rates before year end by the Federal Reserve, we are experiencing an increase in buyers looking to utilize low down payment mortgage products, such as FHA loans, in an attempt to take advantage of our current interest rate environment.”
The report analyzed median home prices derived from publicly recorded sales deed data collected by RealtyTrac and average wage data from the U.S. Bureau of Labor Statistics in 417 U.S. counties with a combined population of nearly 210 million. The affordability index was based on the percentage of average wages needed to make monthly house payments on a median-priced home with a 30-year fixed rate and a 3 percent down payment, including property taxes, home insurance and mortgage insurance. Average 30-year fixed interest rates from the Freddie Mac Primary Mortgage Market Survey were used to calculate the monthly house payments. Only counties with a population of at least 100,000 and sufficient home price and wage data quarterly back to Q1 2005 were used in the analysis.
RealtyTrac is a leading provider of comprehensive U.S. housing and property data, including nationwide parcel-level records for more than 130 million U.S. properties. Detailed data attributes include property characteristics, tax assessor data, sales and mortgage deed records, distressed data, including default, foreclosure and auctions status, and Automated Valuation Models (AVMs). Sourced from RealtyTrac subsidiary Homefacts.com, the company’s proprietary national neighborhood-level database includes more than 50 key local and neighborhood level dynamics for residential properties, providing unrivaled pre-diligence capabilities and a parcel risk database for portfolio analysis. RealtyTrac’s data is widely viewed as the industry standard and, as such, is relied upon by real estate professionals and service providers, marketers and financial institutions, as well as the Federal Reserve, U.S. Treasury Department, HUD, state housing and banking departments, investment funds and tens of millions of consumers.
Jennifer von Pohlmann
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