Marketpulse: Rising Prices And Mortgage Rates Make Homeownership Unaffordable

ATTOM released its second-quarter 2022 U.S. Home Affordability Report, showing that median-priced single-family homes and condos are less affordable in the second quarter of 2022 compared to historical averages in 97 percent of counties across the nation with enough data to analyze. That was up from 69 percent of counties that were historically less affordable in the second quarter of 2021, to the highest point since 2007, just before the housing market crashed during the Great Recession of the late 2000s.

The report also shows that the portion of average wages nationwide required for major home-ownership expenses has risen this quarter to 31.5 percent as the median price of a single-family home has hit a new high of $349,000 and 30-year mortgage rates have shot up above 5 percent. The percentage of average wages consumed by those expenses has risen at the fastest quarterly and annual pace since at least 2000.

“Extraordinarily low levels of homes for sale combined with strong demand have caused home prices to soar over the last few years,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “But homes remained relatively affordable due to historically low mortgage rates and rising wages. With interest rates almost doubling, homebuyers are faced with monthly mortgage payments that are between 40 and 50 percent higher than they were a year ago – payments that many prospective buyers simply can’t afford.”

The report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly home ownership expenses — including mortgage, property taxes and insurance — on a median-priced single-family home, assuming a 20 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics (see full methodology below).

Compared to historical levels, median home prices in 560 of the 575 counties analyzed in the second quarter of 2022 are less affordable than in the past. The latest number is up from 459 of the same group of counties in the first quarter of 2022, 397 in the second quarter of 2021 and just 251, or less than half, two years ago. That increase has continued as the median national home price has spiked 16 percent over the past year while average annual wages across the country have grown just 6 percent.

Major ownership costs on median-priced single-family homes and condos around the U.S. now require more than 28 percent of the average $67,587 wage in the U.S. – a ceiling considered affordable by common lending standards. The current level of 31.5 percent stands at the highest point since the second quarter of 2007 and is up from 26 percent in the first quarter of 2022 and 23.9 percent in the second quarter of last year. Both increases mark the largest jumps since at least 2000.

Affording a home across the nation has gotten significantly tougher in recent months at a time when the U.S. housing market has roared ahead for the 11^th straight year but also faces notable headwinds that could slow it down. One major force remains: home prices have continued to soar in 2022 as a large cohort of homebuyers continues chasing an extremely small supply of properties for sale. Elevated demand has helped push the national median home price up over the past year at more than double the pace of wage growth.

But as mortgage rates have steadily climbed this year from just above 3 percent to near 6 percent for a 30-year loan, costs have escalated for buyers. Higher interest rates, growing inflation, soaring fuel costs and a declining stock market all threaten the housing market, which could already be showing signs of strain – May marked the fifth consecutive month of lower existing home sales than the prior month.

As historic affordability continues to decline, major home-ownership expenses on typical homes are now unaffordable to average local wage earners during the second quarter of 2022 in 388, or 67 percent, of the 575 counties in the report, based on the 28-percent guideline. The largest populated counties that are unaffordable are Los Angeles County, CA; Maricopa County (Phoenix), AZ; San Diego County, CA; Orange County, CA (outside Los Angeles) and Kings County (Brooklyn), NY.

The most populous of the 187 counties where major expenses on median-priced homes remain affordable for average local workers in the second quarter of 2022 are Cook County (Chicago), IL; Harris County (Houston), TX; Philadelphia County, PA; Franklin County (Columbus), OH, and Hennepin County (Minneapolis), MN.

Home prices continue to rise at least 10 percent annually in two-thirds of country

Median single-family home and condo prices in the second quarter of 2022 are up by at least 10 percent over the second quarter of 2021 in 373, or 65 percent, of the 575 counties included in the report. Data was analyzed for counties with a population of at least 100,000 and at least 50 single-family home and condo sales in the second quarter of 2022.

Among the 47 counties in the report with a population of at least 1 million, the biggest year-over-year gains in median sales prices during the second quarter of 2022 are in Collin County (Plano), TX (up 28 percent); Hillsborough County (Tampa), FL (up 27 percent); Maricopa County (Phoenix), AZ (up 25 percent); Clark County (Las Vegas), NV (up 24 percent) and Salt Lake County (Salt Lake City), UT (up 24 percent).

Counties with a population of at least 1 million where median prices have gone up the least or decreased, year-over-year, during the second quarter of 2022 are Oakland County, MI (outside Detroit) (down 2 percent); Honolulu County, HI (up 4 percent); Bronx County, NY (up 5 percent); Cook County (Chicago), IL (up 5 percent) and Kings County (Brooklyn), NY (up 6 percent).

Price gains outpace wage growth in nearly 90 percent of markets

Annual home-price appreciation has been greater than weekly annualized wage growth in the second quarter of 2022 in 510 of the 575 counties analyzed in the report (89 percent), with the largest including Los Angeles County, CA; Harris County (Houston), TX; Maricopa County (Phoenix), AZ; San Diego County, CA, and Orange County, CA (outside Los Angeles).

Average annualized wage growth has surpassed home-price appreciation in the second quarter of 2022 in only 65 of the counties in the report (11 percent), including Cook County, (Chicago), IL; Oakland County, MI (outside Detroit); Fairfield County, CT (outside New York City); Erie County (Buffalo), NY, and San Francisco County, CA.

Ownership costs now require more than 28 percent of average local wages in two-thirds of the nation

Major ownership costs on median-priced, single-family homes in the second quarter of 2022 consume more than 28 percent of average local wages in 388 of the 575 counties analyzed (67 percent), assuming a 20 percent down payment. That is up from 52 percent in the first quarter of 2022 for the same group of counties and 44 percent in the second quarter of last year.

“Worsening affordability appears to be having an impact on demand, which could lead to prices plateauing or even correcting modestly in some markets,” Sharga noted. ”Many potential buyers may elect to continue renting until market conditions improve. Others might adjust their sights and look for smaller properties, or homes that are further away from major metro areas. And it’s possible that worsening affordability could accelerate the migratory trends that the COVID-19 pandemic started, as residents in high cost, high tax states who can now work from home look for less expensive places to live.”

All but two of counties analyzed have seen an increase in the portion of average local wages consumed by major ownership expenses from both the first to the second quarter of this year and from the second quarter of last year to the same period in 2022.

Counties that require the largest percentage of wages are Santa Cruz County, CA (116 percent of annualized weekly wages needed to buy a home); Marin County, CA (outside San Francisco) (109.6 percent); Kings County (Brooklyn), NY (102.9 percent); Maui County, HI (92 percent) and San Luis Obispo County, CA (88.2 percent).

Aside from Kings County, NY, counties with a population of at least 1 million where major ownership expenses typically consume more than 28 percent of average local wages in the second quarter of 2022 include Orange County, CA (outside Los Angeles) (82.1 percent); Alameda County (Oakland), CA (77.2 percent); Queens County, NY (72.5 percent) and Riverside County, CA (outside Los Angeles) (67.6 percent).

Counties where the smallest portion of average local wages are required to afford the median-priced home during the second quarter of this year are Schuylkill County, PA (outside Allentown) (10.2 percent of annualized weekly wages needed to buy a home); Rock Island County (Moline), IL (12.4 percent); Cambria County, PA (outside Pittsburgh) (12.9 percent); Macon County (Decatur), IL (13.4 percent) and Mercer County, PA (outside Pittsburgh) (13.6 percent).

Counties with a population of at least 1 million where major ownership expenses typically consume less than 28 percent of average local wages in the second quarter of 2022 include Allegheny County (Pittsburgh), PA (17.4 percent); Cuyahoga County (Cleveland), OH (18.4 percent); Philadelphia County, PA (19.1 percent); St. Louis County, MO (21.4 percent) and Cook County (Chicago), IL (25.3 percent).

Four in 10 counties require annual wages of more than $75,000 to afford typical home

Amid the downward affordability trend, annual wages of more than $75,000 are now needed to pay for major costs on the median-priced home purchased during the second quarter of 2022 in 232, or 40 percent, of the 575 markets in the report.

The top 20 highest annual wages required to afford typical homes again are all on the east or west coast, led by New York County (Manhattan), NY ($362,691); San Mateo County (outside San Francisco), CA ($357,567); Marin County (outside San Francisco), CA ($347,958); San Francisco County, CA ($327,220) and Santa Clara County (San Jose), CA ($322,131).

The lowest annual wages required to afford a median-priced home in the second quarter of 2022 are in Schuylkill County, PA (outside Allentown) ($17,595); Cambria County, PA (outside Pittsburgh) ($20,171); Mercer County, PA (outside Pittsburgh) ($23,255); Fayette County, PA (outside Pittsburgh) ($23,638) and Bibb County (Macon), GA ($24,501),

Homeownership less affordable than historic averages in nearly all counties

Among the 575 counties analyzed in the report, 560 (97 percent) are less affordable in the second quarter of 2022 than their historic affordability averages. That is up from 80 percent in the first quarter of 2022, 69 percent a year ago and more than double the 44 percent level in the second quarter of 2020. Historic indexes have worsened this quarter compared to a year ago in all but two of those counties.

Historic affordability nationwide has declined for the sixth quarter in row to the worst level since the second quarter of 2007, near the end of the last housing-market boom.

Counties with a population of at least 1 million that are less affordable than their historic averages (indexes of less than 100 are considered less affordable compared to historic averages) include Maricopa County (Phoenix), AZ (index of 58); Mecklenburg County (Charlotte), NC (59); Travis County (Austin), TX (60); Collin County (Plano), TX (60) and Clark County (Las Vegas), NV (60).

Counties with the worst affordability indexes in the second quarter of 2022 are Clayton County, GA (outside Atlanta) (index of 47); Canyon County, ID (outside Boise) (48); Rankin County (Jackson), MS (48); Maury County, TN (outside Nashville) (49) and Pinal County, AZ (outside Phoenix) (49).

Among counties with a population of at least 1 million, those where the affordability indexes have worsened most from the second quarter of 2021 to the second quarter of 2022 are Hillsborough County (Tampa), FL (index down 30 percent); Clark County (Las Vegas), NV (down 30 percent); Collin County (Plano), TX (down 30 percent); Maricopa County (Phoenix), AZ (down 30 percent) and Pima County, (Tucson), AZ (down 30 percent).

Only 3 percent of markets are more affordable than historic averages

Among the 575 counties in the report, only 15 (3 percent) are more affordable than their historic affordability averages in the second quarter of 2022. That is down from 20 percent of the same group in the prior quarter, 31 percent a year ago and 56 percent in the second quarter of 2020.

Counties with a population of at least 1 million that are more affordable than their historic averages (indexes of more than 100 are considered more affordable compared to historic averages) include Westchester County, NY (outside New York City) (index of 103) and New York County (Manhattan), NY (101).

Counties with the best affordability indexes in the second quarter of 2022 include Macon County (Decatur), IL (index of 129); San Francisco County, CA (115); Mercer County, PA (outside Pittsburgh) (114); Peoria County, IL (107) and Schuylkill County, PA (outside Allentown) (106).

Counties with a population of least 1 million where the affordability index has declined the least from the second quarter of last year to the same period this year are Oakland County, MI (outside Detroit) (index down 11 percent); Cook County (Chicago), IL (down 13 percent); Cuyahoga County (Cleveland), OH (down 17 percent); Westchester County, NY (outside New York City) (down 17 percent) and Bronx County, NY (down 18 percent).