Homes are Still Much More Affordable Than in 2006

If you have the impression that home prices are rapidly approaching unaffordable levels, then we have some information that should make you feel better. While there is no doubt that price growth in the last couple of years has been stellar, homes remain far more affordable now than they were during the height of the housing bubble. In fact, the average monthly home payment in the first quarter of this year required 36.5% of the average worker's wages, down over 48% from 2006's decade high of 70.7%!

Affordability was actually slightly better in the first quarter of 2015 compared to the same time last year, when the average house payment required 37.4% of an average worker's wages. Although average wages have grown fairly steadily in the intervening time, home price growth has slowed, causing the increase in affordability. In fact, you would have to go back two full years to the first quarter of 2013, when payments were only 33.5% of wages, to find better affordability than 36.5%.

However, the peak of housing affordability in the last decade occurred in the beginning of 2012, when only 32% of wages were required to make monthly home payments. This was due to strong wage growth and concurrent home price retraction. Conversely, the second quarter of 2006 saw home payments taking up more than twice that amount, at an unbelievable 70.7% of wages!

Changes in home prices, wages, and interest rates have all combined to cause this massive shift in affordability. Although they have rebounded significantly in the last year, home prices are still 12% below their 2006 high. Meanwhile, the average wage has increased 34% and the average interest rate on a 30-year fixed-rate mortgage has dropped 44%.

Daren Blomquist, the vice president of RealtyTrac, says “Although home prices continue to outpace wage growth in the majority of local markets, this analysis somewhat surprisingly shows that affordability is actually improving in most markets thanks to falling interest rates and slowing home price growth, which is allowing wage growth to catch up in some markets. At the national level, buying an average-priced home in the first quarter of 2015 was the most affordable it’s been in two years and nearly twice as affordable as it was in the second quarter of 2006 — when affordability was its worst in the past 10 years. At the local level we’re seeing several bellwether markets where wage growth matched or even outpaced home price growth over the past year.”

For the first quarter of 2015, RealtyTrac reports that the five most affordable counties in the nation were:

  1. Hamilton County, Florida.: just 5.6% of the average wage covered the average monthly home payment
  2. Saint Louis County, Missouri: 8.3%
  3. Saint Louis City, Missouri: 9.4%
  4. Lake County, Indiana (Chicago metro area): 9.5%
  5. Fairfield County, South Carolina (Columbia metro area): 10.3%

On the other hand, here were the five least affordable counties in the nation:

  1. Eagle County, Colorado: 138.5%
  2. Kings County (Brooklyn), New York: 126.3%
  3. Marin County, California (San Francisco metro area): 119.3%
  4. Santa Cruz County, California: 109%
  5. Maui County, Hawaii: 99.2%

The average monthly payment on an average-priced home includes several factors: property taxes, home insurance, private mortgage insurance, and a down payment of 3%.

Sources: Buying a Home 48% More Affordable Than 2006, U.S. Home Affordability Improves to a Two-Year Low in Q1 2015 Even as Home Price Growth Outpaces Wage Growth

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