Process Improvement Column: Home Affordability Is Getting Worse

ATTOM released its fourth-quarter 2024 U.S. Home Affordability Report showing that median-priced single-family homes and condos remain less affordable in the fourth quarter of 2024 compared to historical averages in 98 percent of counties around the nation with enough data to analyze. The latest trend continues a three-year pattern of home ownership requiring historically large portions of wages as U.S. home prices keep reaching new heights.

The report also shows that major expenses on median-priced homes currently consume 34 percent of the average national wage. That level marks an increase of more than one percentage point both quarterly and annually, pushing the figure even farther above the common 28 percent lending guideline preferred by lenders.

The downturns in current and historic affordability represent the latest measures of how home ownership remains a financial stretch for average workers around the nation. They come as the national median home price has climbed to $364,750 this quarter and mortgage rates, while declining, remain over 6 percent. Combined, those forces are helping to keep the ratio of ownership expenses to wages in the unaffordable range.

Fourth-quarter trends also have reversed a slight improvement during the third quarter of this year that had signaled a possible step in the right direction for homeowners. The portion of average wages nationwide required for typical mortgage payments, property taxes and insurance now stands almost 13 points beyond a low point reached early in 2021, right before home-mortgage interest rates shot up from the lowest levels in decades.

“The U.S. housing market continues to generate great profits for most home sellers but also more and more financial stress for would-be buyers. Average workers now must shell out a larger portion of their wages for major home-ownership expenses than at any time since right before the housing market tanked in the late 2000s,” said Rob Barber, CEO for ATTOM. “Despite recent declines in mortgage rates, down payments on typical home purchases have reached four times the average national wage.”

He added that “at some point, something’s got to give, or a growing number of buyers will have no choice but to toss in the towel and wait for home ownership to become more affordable. But we clearly are not there yet.”

The latest numbers reflect yet another period when year-over-year changes in major expenses on typical single-family homes and condos have outrun changes in average wages around the country. Expense totals have either grown faster or declined less than wages during 14 of the last 15 quarters dating back to late 2020, pushing affordability in the wrong direction for house hunters.

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

Compared to historical levels, median home ownership costs in 556 of the 566 counties analyzed in the fourth quarter of 2024 are less affordable than in the past. That is virtually unchanged from both the third quarter of 2024 and the fourth quarter of 2023.

Historic measures remain negative as the portion of average local wages consumed by major home-ownership expenses on typical homes are considered unaffordable during the fourth quarter of 2024 in about 70 percent of the 566 counties in the report, based on the 28 percent guideline. Counties with the largest populations that are unaffordable in the fourth quarter are Los Angeles County, CA; Maricopa County (Phoenix), AZ; San Diego County, CA; Orange County, CA (outside Los Angeles) and Miami-Dade County, FL.

On the flip side, the most populous of the counties with affordable levels of major expenses on median-priced homes during the fourth quarter of 2024 are Cook County (Chicago), IL; Harris County (Houston), TX; Wayne County (Detroit), MI; Philadelphia County, PA, and Cuyahoga County (Cleveland), OH.

National median home price up quarterly and annually amid mixed picture at county level

The national median price for single-family homes and condos has risen to a record high of $364,750 in the fourth quarter of 2024. The latest figure represents a 2.1 percent increase over the third quarter of this year and is 11.4 percent above the typical price in the fourth quarter of 2023.

At the county level, the pattern is more varied. Median home prices have increased since the fourth quarter of last year in 503, or 88.9 percent, of the 566 counties included in the report. Quarterly, however, typical values they have risen in only 210, or 37.1 percent of those markets. That is a sign that the latest jump in national median price may be driven more by larger numbers of sales in markets with bigger increases.

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 fourth quarter of 2024 with sufficient data.

Among the 47 counties in the report with a population of at least 1 million, the biggest year-over-year increases in median prices during the fourth quarter of 2024 are in Bronx County, NY (up 13.3 percent annually); Wayne County (Detroit), MI (up 12.9 percent); Cook County (Chicago), IL (up 12.1 percent); Suffolk County (Long Island), NY (up 11.5 percent) and Santa Clara County, CA (up 11 percent).

The only counties with a population of at least 1 million where median prices remain down from the fourth quarter of 2023 to the same period this year are New York County (Manhattan), NY (down 3.3 percent) and Kings County (Brooklyn), NY (down 1 percent).

Prices improving more than wages in three-quarters of U.S.

As home values keep rising throughout most of the U.S., year-over-year price changes have outpaced changes in weekly annualized wages during the fourth quarter of 2024 in 429, or 75.8 percent, of the counties analyzed in the report. That has helped push affordability levels down for average workers around the country.

The latest group of counties where prices have increased more than wages annually include Los Angeles County, CA; Cook County, (Chicago), IL; Maricopa County (Phoenix), AZ; San Diego County, CA, and Orange County, CA (outside Los Angeles).

On the other side of the spectrum, year-over-year changes in average annualized wages have bested price movements during the fourth quarter of 2024 in just 137 of the counties analyzed (24.2 percent).

Home ownership consuming larger portion of wages in majority of U.S.

Despite falling mortgage rates in recent months, the portion of average local wages consumed by major expenses on median-priced single-family homes and condos has risen quarterly in 357, or 63.1 percent, of the 566 counties analyzed, although it is still down annually in slightly more than half.

Nationwide, the typical $2,092 cost of mortgage payments, homeowner insurance, mortgage insurance and property taxes is up 4.6 percent quarterly and 6.1 percent annually to a new all-time high. That has outpaced the 1 percent quarterly and 3.1 annual gains in the average national wage.

The latest expense total commonly consumes 34 percent of the average annual national wage of $73,918. That is up from 32.5 percent the third quarter of 2024 and from 32.7 percent in the fourth quarter of last year. The current level is nearly 13 percentage points more than a recent low point of 21.3 percent hit in the first quarter of 2021.

The cost-to-wage ratio exceeds the 28 percent lending guideline in 436, or 77 percent, of the counties analyzed, assuming a 20 percent down payment. That percentage is unchanged from the third quarter of 2024, based on the same group of counties, but is up slightly from 75.4 percent a year ago. It is far above the 31 percent figure recorded in early 2021.

In about one-third the markets analyzed around the U.S., major expenses consume at least 43 percent of average local wages, a benchmark considered seriously unaffordable.

Affordability downturns over the past year have hit hardest in low- and mid-priced markets, where prices fall below $350,000, with concentrations in the Northeast and Midwest. Those areas generally have been among the more affordable for local wage earners – a sign that they could be headed into the same difficult territory as more expensive markets.

Home ownerships on Northeast and West coasts still pose biggest financial burden for buyers

All but two of the top 25 counties where major ownership costs require the largest percentage of average local wages in the fourth quarter of 2024 are on the Northeast or West coasts, extending past trends. The leaders are Santa Cruz County, CA (115.5 percent of annualized local wages needed to buy a single-family home or condo); Maui County, HI (114.6 percent); Marin County, CA (outside San Francisco) (109.7 percent); Kings County (Brooklyn), NY (106.5 percent) and San Luis Obispo County, CA (96.2 percent).

Aside from Kings County, those with a population of at least 1 million where major ownership expenses typically consume more than 28 percent of average local wages in the fourth quarter of 2024 include Orange County, CA (outside Los Angeles) (96 percent required); Queens County, NY (79.4 percent); Alameda County (Oakland), CA (77.2 percent) and San Diego County, CA (72.9 percent).

Counties where the smallest portion of average local wages are required to afford the median-priced home during the fourth quarter of this year are Cambria County, PA (east of Pittsburgh) (11.5 percent of annualized weekly wages needed to buy a home); Schuylkill County, PA (outside Allentown) (12.8 percent); Macon County (Decatur), IL (13.3 percent); Peoria County, IL (13.4 percent) and Mobile County, AL (13.6 percent).

Wage needed to afford typical home 21 percent above U.S. average

Major home ownership expenses on typical homes sold in the fourth quarter of 2024 require an annual income of $89,649 to be affordable. That is 21.3 percent more than the latest average national wage of $73,918.

Annual wages of more than $75,000 are needed to pay for major costs on median-priced homes purchased during the fourth quarter of 2024 in 325, or 57.4 percent, of the 566 markets in the report. That continues to pose major obstacles as average wages exceed that amount in just 13.6 percent of the counties reviewed.

The 20 counties with the highest annual wages required to afford typical homes remain along the east or west coasts, led by San Mateo County, CA ($404,277); Santa Clara County (San Jose), CA ($377,190); Marin County, CA (outside San Francisco) ($360,875); New York County (Manhattan), NY ($357,923) and San Francisco County, CA ($346,004).

The lowest annual wages required to afford a median-priced home in the fourth quarter of 2024 are in Cambria County, PA (east of Pittsburgh) ($20,235); Schuylkill County, PA (outside Allentown) ($24,415); Robeson County, NC (outside Fayetteville) ($26,656); Mercer County, PA ($27,390) and Mobile County, AL ($29,356).

Home ownership still unaffordable by historical standards throughout U.S.

Home ownership is less affordable in the fourth quarter of 2024 compared to historic averages in 98.2 percent of the 566 counties analyzed. That is about the same as the level in both the third quarter of 2024 and the fourth quarter of last year, but more than 20 times higher than the 4.6 percent portion in the first quarter of 2021.

Historical indexes have worsened quarterly, mostly by small amounts, in about two-thirds of the counties reviewed. That had dropped the nationwide index to its lowest point since 2007.

Counties with a population of at least 1 million that are less affordable than their historic averages (indexes of less than 100 are considered historically less affordable) include Wayne County (Detroit), MI (index of 61); Fulton County (Atlanta), GA (65); Mecklenburg County (Charlotte), NC (65); Broward County (Fort Lauderdale), FL (65) and Hillsborough County (Tampa), FL (66).

Overall, counties with the worst affordability indexes in the fourth quarter of 2024 are Jasper County (Carthage), MO (index of 54); Jackson County, MS (56); Beaver County, PA (outside Pittsburgh) (56); Navajo County, AZ (Holbrook), AZ (57) and Muskegon County, MI (57).

The nationwide index of 74 is worse than in the third quarter of this year (78) and the fourth quarter of last year (77).