RealtyTrac: Low Mortgage Rates, Rising Wages Help Boost Home Affordability

Home affordability improved slightly in the second quarter due mainly to rising annual incomes and low interest rates, according to RealtyTrac’s Home Affordability Index, which uses publicly recorded sales deed data and average wage data from the U.S. Bureau of Labor Statistics to arrive at its conclusions.

The report shows that as of the end of the second quarter, about 18% of U.S. housing markets were less affordable compared with pre-crisis levels. That’s up from 5% of markets in the first quarter but down from 20% of markets in the second quarter of 2015.

The index is 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% down payment – including property taxes and insurance.

Out of the 417 counties analyzed, 74 had an affordability index below 100, meaning buying a median-priced home was less affordable than the historically normal level for those counties going back to the first quarter of 2005.

“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,” says Daren Blomquist, senior vice president of 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 two percent in the second quarter of 2016 compared to 21 percent in the second quarter of 2015, even while annual wage growth accelerated from five percent to six percent,” Blomquist adds. “Affordability constraints are beginning to rein in home price appreciation, even while wage growth is gaining speed in an increasing number of markets.”

For more, including a regional breakdown of affordability, click here.


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