10/08/2021 | Press release | Distributed by Public on 10/08/2021 12:37
Key points
Higher prices remain the most significant hurdle to home ownership for median-income households, the latest reading of an Atlanta Fed measure shows. For a growing share of consumers, higher home prices have negated the benefits from low interest rates and wage growth.
National affordability: Average home price tops $340,000
With a 93.4 rating in July, the Federal Reserve Bank of Atlanta's Home Ownership Affordability Monitor (HOAM) index fell to its lowest level since 2008 (see chart 1). A HOAM index reading below 100 is an indication that a median-income household cannot absorb the costs of owning a median-priced home on the market. The HOAM index has remained below 100 since March. Over the past year, US home ownership affordability dropped 11.1 percent as home prices sustained upward movement. Although the pace of home price growth has lessened, the median existing home sales price tag continues to increase, reaching a record $342,350 (three-month moving average) in July, according to data tracker CoreLogic. Despite still low 30-year fixed mortgage rates, the median-income US household would need to spend 32.1 percent of its annual income to own the median-priced home, above the 30 percent affordability threshold recommended by the federal Department of Housing and Urban Development.
Historically low interest rates remain the primary driver of housing demand. Improving wage growth as the economy emerges from the coronavirus pandemic has helped households that are considering purchasing a home. However, for a growing share of those looking to purchase a home, rising home prices have erased the benefits of low rates and wage growth. (see chart 2).
Regional affordability: Midwest stands out
Although prices have risen across most US metropolitan areas, markets with more moderate price growth remain affordable. According to HOAM, Midwest metros tend to be among the most affordable in the country (see map 1). The Youngstown-Warren-Boardman area in northeast Ohio and western Pennsylvania remains the nation's most affordable large metro. The median home sales price there was relatively low at $138,250 in July, and home price growth was flat over the past year. On average, owning a median-priced home in the market would consume 19.1 percent of the annual median household income ($49,287), the lowest cost of ownership among large US metros.
Alternatively, metros in California continue to be among the country's least affordable. 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 some of the nation's most expensive large metros. Though home price growth in these areas has not kept pace with national trends, rising prices have still eroded affordability.
In the area with banks supervised by the Atlanta Fed, which includes Florida, Georgia, Alabama, and parts of Mississippi, Louisiana, and Tennessee, home ownership affordability tends to be higher because of relatively low home prices in the Southeast compared with other US regions. High-cost markets in southern and central Florida remain an exception, however, as soaring home prices have made previously affordable markets too expensive for median-income households. In July, Tampa and Punta Gorda both fell below the HUD affordability threshold as the share of income needed to afford the median-priced home in those markets exceeded 30 percent.
Over 80 percent of metro areas in the country saw a decline in affordability in the past year (see map 2). Among large metros, only St. Louis, Missouri; Harrisburg, Pennsylvania; Baltimore, Maryland; and Youngstown, Ohio, showed improvement in affordability in July from last year. For the most part, home sales price growth in these markets was not enough to offset the benefit from low interest rates and stronger wages.
Markets that draw buyers from high-cost areas continue to post the sharpest contraction in affordability. For example, Boise City, Idaho; Spokane-Spokane Valley, Washington; Phoenix-Mesa-Scottsdale, Arizona; and Austin-Round Rock, Texas, tend to attract buyers from high-cost markets in California. The median price of homes sold in those four areas rose by over 25 percent in the past year, higher than the national increase (17.6 percent). Many of these relocating buyers sold homes in their previous markets and tend to have large sums of cash to apply toward a home purchase. Over the past year, the increase in remote-work arrangements gave consumers greater flexibility in terms of where they chose to live, making it easier to exit less-affordable, high-cost markets. In many cases, buyers moving out of higher-cost markets have been able to pay more for homes than many local residents in the markets where they moved, a factor that has priced many local buyers out of home purchases.
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
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