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Posted 05/26/2016

Will Homes Be Too Expensive For First-Time Buyers By 2017?

NAHB: Home Opportunity Index rises in Q1 2016

Low Mortgage Rates Boost Home Affordability

Today's mortgage rates are defining the 2016 housing market, with ultra-low rates helping to keep U.S. homes affordable for would-be buyers.

Last quarter, nearly 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.

A drop in mortgage rates along with a slight rise in worker wages helped to offset rising home prices nationwide.

Home values are up more than 5% annually. They're expected to rise into 2017, too. Home supply is short and buyer demand is strong. Homes will likely be less affordable a year from now.

For buyers wanting 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 worse.

Click to see today's rates (Jul 29th, 2016)

65% Of U.S. Homes "Affordable" For Typical Buyer

The National Association of Home Builders (NAHB) has released its Housing Opportunity Index (HOI) for this year's first 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 more affordable today as compared to the last three quarters, despite a sharp rise in home prices.

Low mortgage rates are carrying the day.

To determine whether a home is "affordable", the NAHB 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, 65 percent of U.S. homes were affordable for households earning the national median income. The reading marks a 1.7 percentage point improvement from the quarter prior.

The trend in home affordability is higher for today's buyers, despite double-digit home price increases. Low mortgage rates have offset the gains in pricing.

  • Q3 2015 : 62.2% of homes were affordable to median income earners
  • Q4 2015 : 63.3% of homes were affordable to median income earners
  • Q1 2016 : 65.0% of homes were affordable to median income earners

But, just for a point of comparison, in 2012, home affordability averaged 75% nationwide.

If you're planning to buy a home this year or next, consider moving up your time frame. Low rates may not last.

Click to see today's rates (Jul 29th, 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 Cumberland, Maryland. 98.0% of all homes sold in the area were affordable to households earning the area's median income of $55,100. Roughly 20,000 people live in the Cumberland Metropolitan Statistical Area.

Other cities which ranked high for affordability last quarter included Wheeling, West Virginia (96.4%); Davenport, Iowa (93.6%); and, Lima, Ohio (93.2%).

Upstate New York fared well, too, with Binghamton, Syracuse, and Utica all besting 91% affordability.

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

Just 10.4% of households earning the area's median income of $96,800 can afford the area's median home sale price of $1,060,000.

San Francisco has ranked as the least affordable housing market out of 225 metropolitan areas for 12 of the 13 prior quarters.

Other low-ranking cities in California, which accounted for seventeen of the 19 Least Affordable Housing Markets, included Los Angeles (15.6%); Santa Cruz (16.1%); and, the Santa Ana-Irvine-Anaheim area (16.2%).

New York City (36.0%) was the 15th 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 2017, 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 (Jul 29th, 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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2016 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)