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Posted August 18, 2015
in Mortgage Market Headlines

Will Homes Be Completely Out Of Reach For First-time Buyers By 2016?

NAHB: Home Opportunity Index (HOI) shows that falling mortgage rates are doing little to offset rising home prices and stagnant wages

Homes Less Affordable Despite Low Rates

Low mortgage rates have helped to define this year's housing market, but it's doing little to help keep home buying within reach for U.S. buyers. 

Last quarter, fewer than two-thirds of U.S. homes were "affordable" to households earning the national median income, assuming that household used 30-year mortgage to finance the home; made a modest downpayment; and, carried good credit scores.

Rising home values and stagnant wages are over-taking the effect of low rates.

Recent data shows home values up more than five percent nationwide since last year and mortgage rates may be close to bottoming out.

For buyers looking to maximize their home-buying dollar, then, now may be the best time to buy a home.

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Home Affordability Worsening

The National Association of Home Builders (NAHB) has released its Housing Opportunity Index (HOI) for this year's second quarter.

The Housing Opportunity Index is a quarterly gauge of home affordability which tracks the typical U.S. household's ability to purchase the typical U.S. home.

Data is collected across 225 metropolitan areas.

The index shows that homes, in general, are less affordable today as compared to earlier this year despite a drop in mortgage rates.

To determine whether a home is "affordable", the NAHB first gathers the median home sale price for an area, then identifies the average 30-year fixed rate mortgage rate during the period, and, finally, projects what a typical housing payment would be.

An"affordable" home is one for which the front-end debt-to-income ratio is 28% or less of the area's median household monthly income. The front-end debt-to-income ratio is calculated as (total housing payment) divided by (total monthly income).

The index also assumes conventional financing via Fannie Mae or Freddie Mac, plus a ten percent home downpayment.

Last quarter, 63.2 percent of U.S. homes were affordable for households earning the national median income of $65,800. The reading marks a 3.3 percentage point decrease from the quarter prior.

Affordability has worsened as the housing market has recovered :

  • Q2 2011 : 72.6 percent
  • Q2 2013 :¬†69.3¬†percent
  • Q2 2015 : 62.8 percent

Since mid-2011, mortgage rates are lower by close to 75 basis points (0.75%) but the median home sale price has climbed from $172,000 to $230,000. Plus, household wages are mostly unchanged during this time.

As a result, homes are less affordable overall.

And, as home values rise into 2016, and with household income projected to remain flat, home affordability is likely to worsen into future.

If you're planning to buy a home, you may want to buy one soon.



Click to see today's live mortgage rates. 

California Least Affordable; Midwest Most Affordable

Like all things in real estate, home affordability varies by area.

Home prices, mortgage rates, and household incomes all vary by metropolitan markets, and so does the Home Opportunity Index.

Midwest markets dominated the HOI. California markets fared poorly.

Last quarter's most affordable housing market was Kokomo, Indiana. 95.5% of all homes sold in the area were affordable to households earning the area's median income of $52,200. Roughly fifty-seven thousand people live in Kokomo, which is Indiana's 13th largest city.  

Other cities which ranked high for affordability last quarter included Battle Creek , Michigan (91.8%); Fairbanks, Alaska (91.5%); Syracuse, New York (90.3%); and Indianapolis, Indiana (88.1%)

The most affordable city west of the Mississippi was Wichita Falls, Texas, where the affordability ranking was 89.7%. 

Meanwhile, the San Francisco-San Mateo-San Jose, California area ranked least affordable.

Just 11.0% of households earning the area's median income of $103,400 can afford the area's median home sale price of $1,011,000.

San Francisco has ranked as the least affordable housing market out of 225 metropolitan areas for 9 of the 10 prior quarters.

Other low-ranking cities in California, which accounted for fourteen of the 15 Least Affordable Housing Markets, included Los Angeles (16.2%); Santa Cruz (18.2%); and, the Santa Ana-Irvine-Anaheim area (18.5%).

New York City (23.2%) was the 9th least affordable market.

What Are Today's Mortgage Rates?

U.S. home prices for homes are rising faster than mortgage rates can drop. Consider writing an offer on a home soon, therefore. By 2016, home affordability may worsen even more.

Take a look at today's mortgage rates now. Rates are available with no social security number required to get started, and with instant access to your "mortgage credit scores".

Click to get a live rate quote.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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