6-Oct-18 – With home affordability in the United States dropping to the lowest level in a decade, the dream of homeownership appears to be slipping away from middle-class America.

“Rising mortgage rates have pushed home prices to the least affordable level we’ve seen in ten years, both nationally and at the local level,” said Daren Blomquist (left), senior vice president at ATTOM Data Solutions.

“Close to one-third of the U.S. population now lives in counties where buying a median-priced home requires at least $100,000 in annual income, based on our analysis of 440 counties with a combined population of 220 million,” he said.

According to ATTOM Data Solutions’ U.S. Affordability Report, Chicagoans needed an annual income of $77,263 to qualify for the purchase of the $235,000 median-priced home or condominium in the third quarter of 2018. However, national data shows Chicago is one of the most affordable housing markets in the Midwest.

In five California Bay Area counties, the following annual income is required to buy a median-priced home...

• San Mateo ($377,210)
• San Francisco ($366,582)
• Santa Clara ($327,284)
• Marin ($311,827)
• Alameda ($237,760)

The next most expensive counties nationwide were Westchester County, New York ($228,937), and Kings County (Brooklyn), New York ($221,993).

People are leaving highest-priced housing markets

U.S. Census net migration data shows negative net migration in more than two-thirds of the nation’s highest-priced housing markets. Meanwhile, more than three-quarters of markets requiring annual income of less than $100,000 to buy a home posted positive net migration.

“This indicates that home affordability is at least one factor driving recent migration patterns,” Blomquist said.

In 2017, the net migration in the Cook County/Chicago area was minus 45,360 people, U.S. Census data shows.

Nationwide, the median home price of $250,000 in the third quarter of 2018 was up six percent from a year ago, twice the annual growth of three percent in average wages.

U.S. median home prices have increased 76 percent since bottoming out in the first quarter of 2012, while average weekly wages have increased only 17 percent over the same period. The average 30-year fixed mortgage rate is up 17 percent over the past year, reports Freddie Mac’s Primary Mortgage Market Survey.

“As most purchasers [base their budgets] on monthly payments, the median buyer is now able to bid significantly less than before,” said Tendayi Kapfidze (right), chief economist at LendingTree, estimating that home buyers are able to borrow ten percent less than a year ago because of the rise in interest rates.

The ATTOM Data report 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 three percent down payment and a 28 percent maximum “front-end” debt-to-income ratio.

Entry-level market squeezes home buyers the most

According to a new housing forecast from Freddie Mac, prospective buyers are being squeezed the most where demand is the strongest – the entry-level portion of the market.

“Too many would-be buyers continue to be tripped up by not enough affordable supply and the one-two punch of much higher home prices and mortgage rates,” said Sam Khater (left), Freddie Mac’s chief economist.

Highlights of the Freddie Mac forecast...

• Mortgage rates inched backward over the summer but have most recently started to trend higher again. Overall, the 30-year fixed-rate mortgage is expected to average 4.5 percent this year and 5.1 percent in 2019. The rise in mortgage rates so far this year means a potential home buyer would pay about $35,000 more in interest on a $220,000 loan over 30 years.

• Weakening affordability and not enough moderately-priced homes on the market continue to affect housing activity. Total home sales – new and existing – are now forecast to decline modestly this year to 6.07 million, compared with 6.12 million homes sold in 2017. Home prices are expected to moderate but still stay at a pace above inflation.

• The share of cash-out refinances last quarter was 78 percent, the highest since the third quarter of 2008. However, the total dollar volume of cash-out refinance activity remains much lower than the peak seen more than a decade ago. An estimated $15.5 billion in net home equity was cashed out last quarter, which is substantially less than the peak cash-out refinance volume of $102.3 billion in the second quarter of 2006.