09/09/2021 | Press release | Distributed by Public on 09/09/2021 12:13
September 9, 2021
Key points
The latest reading of an Atlanta Fed measure and US housing trends show home ownership is becoming out of reach for many buyers and resistance to higher prices is building. More than 80 percent of US metro areas had a drop in affordability.
National affordability
With a 92.2 rating in June, the Federal Reserve Bank of Atlanta's Home Ownership Affordability Monitor (HOAM) index fell to its lowest level since 2008 (see chart). The index fell below 100 in March and has remained there. A reading below 100 indicates that a median-income household can no longer afford to own a median-priced home on the market. Over the past year, the index shows that US home ownership affordability dropped by 11.9 percent as prices soared. In June, median existing home sale prices rose above a record $340,000 (three-month moving average), according to data provider CoreLogic. This valuation represents a 23.8 percent increase over the past 12 months, one of the highest year-over-year price gains on record. Even with relatively low 30-year fixed interest rates (2.87 percent in August), a median-income household would spend 32.6 percent of its annual income to own a median-priced home, which is above the 30 percent affordability threshold set by the US Department of Housing and Urban Development.
Following the onset of the pandemic in March and April 2020, declining mortgage interest rates became the primary catalyst for a surge in housing demand. Although home sale prices began to rise during the pandemic, lower rates were more than enough to offset the higher cost burden for consumers. In addition, greater income growth as the US economy emerged from COVID-19-related shutdowns helped maintain affordability as prices rose. However, this trend began to shift in 2021, when sale prices reached peak levels and low interest rates and higher incomes could no longer offset the increased cost (see chart). As a result, home ownership affordability began to weaken significantly.
Regional affordability
Markets in Ohio and Pennsylvania dominated the ten most affordable metro areas. To a large degree, they have seen relatively modest growth in home sale prices. For example, in the Youngstown-Warren-Boardman metro area-the nation's most affordable large metro, according to HOAM-the median home sales price ($138,875 in June) remained flat from the year earlier, while prices nationally increased by more than 20 percent. As a result, a median-income household in Youngstown would spend only 19 percent of its annual income ($49,258) to own a median-priced home, the lowest home ownership cost among the nation's largest metros (population greater than 500,000).
Eight of the country's 10 least affordable markets were in California. Historically, markets in northern California (San Francisco-Oakland-Hayward and San Jose-Sunnyvale-Santa Clara) and southern California (Los Angeles-Long Beach-Anaheim and San Diego-Carlsbad) have been among the most expensive large metros in the nation. Although home sales price growth in these areas has not kept pace with national trends, rising prices have been a culprit in eroding affordability. In San Francisco, for example, home prices rose by 7 percent over the past year, well below the national rise of 23.8 percent. However, with median home sale prices reaching a record $1.3 million, a median income household in San Francisco ($118,036) would end up spending 61.5 percent of its income on a median-priced home in the area. It should be noted that, in most cases, households that earn just the median income in a high-cost market like San Francisco would most likely rent rather than own because of the lack of affordable ownership options.
In the region supervised by the Atlanta Fed, which includes Florida, Georgia, Alabama, and parts of Mississippi, Louisiana, and Tennessee, home ownership affordability tends to be much higher thanks to relatively low home sale prices in the region. However, markets in South Florida such as Miami and Naples remained the least affordable. Additionally, as prices have risen across the state of Florida, markets that were previously affordable according to the HOAM index-including Deltona-Daytona Beach-Ormond Beach and North Port-Sarasota-Bradenton-shifted to unaffordable in June. Elsewhere, college towns like Athens, Georgia, home to the University of Georgia, and Gainesville, Florida, the location of the University of Florida, also were among the District's least affordable markets.
About 82 percent of metro areas had a decline in affordability over the past year. The deterioration was so widespread that only five large metros showed an increase in affordability. In addition to Youngstown, other areas that became more affordable were Baltimore-Columbia-Towson, Maryland; Jackson, Mississippi; Syracuse, New York; and Pittsburgh (see table). For the most part, growth in home sale prices in these markets was not enough to offset the benefit from low interest rates.
On the other hand, sharp rises in home sales prices in markets like Boise City, Idaho; Phoenix-Mesa-Scottsdale, Arizona; and Austin-Round Rock, Texas, led to significant year-over-year decreases in affordability in June. Affordability declined in these metros by 21.4, 16.2, and 16 percent, respectively. At the same time, the median price of homes that sold in all three of these metros rose more than 25 percent over the past year, exceeding the national rate. In most cases, markets with the sharpest decline in affordability had an influx of homebuyers moving from higher-cost markets over the past year. Boise City, for example, was the landing spot for a surge of buyers relocating from coastal California, which drove up home sale prices by 35 percent over the past year. Many of these buyers, having recently sold or cashed out equity on an existing house, tend to have large sums of cash to put toward a new purchase. The increase in remote work since the start of the pandemic also gave greater flexibility to homebuyers in choosing where to live, helping to accelerate relocations from higher-cost markets to lower-cost markets. In many cases, buyers with higher incomes and more cash on hand moving from high-cost markets also have been able to pay more for homes than many local consumers in the areas in which they relocate. These trends have priced many local homebuyers out of the market in cities such as Boise City, Phoenix, and Austin.
National housing market roundup
Here's a look at recent trends with important housing sector indicators.
For more details, including metro level analysis, please visit the interactive Home Ownership Affordability Monitor.
a residential real estate subject matter expert in the Real Estate Intelligence Team/Risk Analysis Unit of the Atlanta Fed's Supervision, Regulation, and Credit Division
The Atlanta Fed moderates all comments posted by visitors to this website. We reserve the right to delete content that is abusive, harassing, or threatening; or obscene, vulgar, or profane. In addition, no off-topic remarks or spam is permitted. Learn more at our Disclaimer & Terms of Use and Online Privacy Policy.