Home Price Increases Outpace Income Gains

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Fewer homes on the market are
affordable than a year ago, and fewer households can afford them with their
current income.  The National Association
of Realtors® (NAR) and the realtor.com website have released a list of the
least and the most affordable locations nationwide based on the area’s income
and the website’s active listings.

The maximum affordable home price
assumes that 30 percent of a purchaser’s income can go to pay for the
financing, property tax, homeowner’s insurance costs, and a mortgage insurance
premium if required.  It is also assumed
that the purchase will be financed with a vanilla 30-year mortgage at the prevailing
rate advertised by lenders on the realtor.com site. A score of one or higher
generally suggests a market where homes for sale are more affordable to
households in proportion to their income distribution. 

The study found a decrease in
affordability nationwide. The national score decreased from 0.86 to 0.84 during
the 12 months ended in March.  Both
rising home prices and a spike in mortgage rates contributed to that decrease.

Lawrence Yun, NAR chief economist
found a notable imbalance between what potential home buyers can afford and
what is listed for sale. “The survey confirms that the lack of entry-level
supply is putting affordability pressures on too many buyers – especially those
at the lower end of the market, where demand is the strongest. This is why
first-time buyers continue to struggle finding affordable properties to buy and
are making up less than a third of home sales so far this year,” Yun said. 

The states with the least affordable
housing stock
were Hawaii, California, Oregon, the District of Columbia,
Montana, and Rhode Island.  Those states
had Affordability Scores ranging from 0.52 to 0.64.  This means that households with the median
level of income in those areas could afford only 19 to 23 percent of the
housing inventory available in March.  At
the other extreme, in Ohio, Indiana, Kansas, Iowa, and West Virginia 54 to 63
percent of households could afford to buy from current inventory. Those states
had Affordability Scores ranging from 1.12 down to 1.05.

The
markets with the lowest affordability scores were all in California; Los
Angeles-Long Beach, San Diego, San Jose, Oxnard-Ventura, and San
Francisco-Oakland. Their scores, ranging from 0.35 to 0.48 indicate that a
typical household can only afford only 3 to 11 percent of the active housing
inventory.

The most affordable areas, where the
current inventory is affordable to about 75 percent of households, include
Youngstown, Dayton, Toledo, and Akron, Ohio and Scranton-Wilkes-Barre,
Pennsylvania. Scores in those metros ranged from 1.25 to 1.11.

While affordability declined
nationally, it improved in 14 states and 35 metro areas. At the same time, it
grew worse in 45 metros.  Improvement was
greatest in the District of Columbia, Vermont, Hawaii, and North Dakota.  Among the improving metro areas were Austin,
Texas; Syracuse, Sarasota, and Palm-Bay-Melbourne, Florida. Among those states
and metros Syracuse was the only place where the improved score was 1.0 or higher.

“Wages are growing, which is welcome
news for prospective buyers, but prices are increasing at a faster rate, up
almost 6 percent in the first two months of 2018. Solutions to improve these
conditions include more homeowners selling, investors releasing their portfolio
of single-family homes back onto the market and more single-family housing
construction,” Yun said.



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