Affordability Drops in Many Housing Markets

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IRVINE, CA—National housing prices have increased to the point where 34% of US county housing markets are now less affordable for buying than their long-term averages, according to a report from RealtyTrac. The firm found that as of the second quarter, one-third of the counties analyzed have surpassed their historical averages for income-to-price affordability percentages since 2000, making them less affordable now than they have been on average over the last 14 years.

The report calculated both the percentage of median income needed to make monthly payments on a median-priced home in each county in May and the historical trend in each county's income-to-price affordability percentage going back to January 2000. It also analyzed the impact of rising interest rates on affordability, calculating the percentage of median income needed to make payments on a median-price home if interest rates rise by a quarter percentage point, a half percentage point, three-quarters of a percentage point or a full percentage point.

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According to Daren Blomquist, VP at RealtyTrac, “The good news is that none of the nearly 1,200 counties we analyzed for the second quarter has regressed to the dangerously low affordability levels reached during the housing price bubble, and even if interest rates increased 1 percentage point, only 59 counties representing 2% of the US population would be at or above bubble levels in terms of affordability. But the scales are beginning to tip away from the extremely favorable affordability climate we've seen over the last two years, with one-third of the counties analyzed representing 19% of the total population in those counties—now less affordable than their long-term averages.”

Still, Blomquist says 81% of the population lives in markets where the percentage of income needed to purchase a median-priced home is at or below its long-term average, which shows that most markets are still affordable.

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As GlobeSt.com reported last week, RealtyTrac's list of the 15 most-affordable counties in which to buy or rent nationwide contained eight Southeast counties, three Northeast/Mid-Atlantic counties and four Midwest counties. Its list of the 15 least-affordable counties in which to buy or rent contained seven Western counties, five Northeast counties, two Mid-Atlantic counties and one Southeast county.