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Posted November 13, 2015
in Mortgage Market Headlines

Where Will Homes Will Be “Out Of Reach” For Buyers In 2016?

NAHB: Home Affordability by Quarter

Homes Less Affordable Despite Low Rates

Current 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 a 30-year mortgage to finance the home; made a modest downpayment on the property; and, carried good credit scores.

An increase in home values plus stagnant worker wages are harming home affordability in many U.S. cities.

Sub-4% mortgage rates can only help so much.

Home prices are expected to rise into the 2016 Housing Market and, although labor markets are tightened, wages aren't expected to make outsized gains. Therefore, next year, the typical home may be even tougher to afford on a monthly basis as compared to today.

For buyers looking to maximize their home-buying dollar, then, the next few months may be an opportune time to purchase a home. After that, home affordability may be markedly worse.

Click to see today's rates (Feb 13th, 2016).

Home Affordability Worsening

The National Association of Home Builders (NAHB) has released its Housing Opportunity Index (HOI) for this year's third 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, in general, homes are less affordable today as compared to earlier this year despite mortgage rates in the 3s.

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, 62.2 percent of U.S. homes were affordable for households earning the national median income. The reading marks a 1 percentage point drop from the quarter prior.

The trend in home affordability is worrisome for today's buyers:

  • Q1 2015 : 66.5%¬†of homes were affordable to median income earners
  • Q2 2015 :¬†63.2%¬†of homes were affordable to median income earners
  • Q3 2015 : 62.2%¬†of homes were affordable to median income earners

As point of comparison, in 2012, home affordability averaged 75.1% nationwide.

If you're planning to buy a home, you may want to buy one soon. Not only are home values expected to rise in 2016, but mortgage rates are, too.

Every 25 basis point (0.25%) increase in mortgage rates takes about three percent off your maximum home purchase price; and mortgage rates are expected to climb one-half percentage point or more by the end of 2016.

If you're planning to buy a home in 2016, consider moving up your time frame.

Click to see today's rates (Feb 13th, 2016)

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 and upstate New York dominated the HOI. California markets fared poorly.

Last quarter's most affordable housing market was Glen Falls, New York. 92.6% of all homes sold in the area were affordable to households earning the area's median income of $65,400. Roughly 125,000 people live in the Glen Falls Metropolitan Statistical Area.

Other cities which ranked high for affordability last quarter included Syracuse, New York (91.7%); Rockford, Illinois (90.9%); and, Monroe, Michigan (90.2%).

The most affordable city west of the Mississippi was Fairbanks, Alaska, where the affordability ranking was 88.9%.

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

Just 10.5% of households earning the area's median income of $103,400 can afford the area's median home sale price of $985,000.

San Francisco has ranked as the least affordable housing market out of 225 metropolitan areas for 10 of the 11 prior quarters.

Other low-ranking cities in California, which accounted for seventeen of the 19 Least Affordable Housing Markets, included Los Angeles (14.7%); the Santa Ana-Irvine-Anaheim area (16.2%); and, Santa Cruz (16.5%).

New York City (20.5%) 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.

Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Click to see today's rates (Feb 13th, 2016)

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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