Housing affordability crisis? Maybe not, according to new data

Aly J. Yale
The Mortgage Reports contributor

Affordability at 40-year high

There’s a lot of talk about the housing affordability crisis faced by Millennial home buyers. But according to new data from Trulia, today’s buyers are actually enjoying a much more affordable market than their parents did 40 years ago.

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A look back in history

Trulia recently looked at home affordability across the decades, weighing median home prices and average household incomes for that time period. Despite inventory issues and ever-climbing prices, today’s market came out as the most affordable decade in a while.

“Nationally, homes are just about the most affordable they’ve been in the last 40 years,” Trulia’s Alexandra Lee reported. “In 2016, the median household could afford a home 1.5 times more expensive than the median home price. In 1980, the median household could only afford about three-quarters of the median home price.”

Home affordability still high, despite increasing home prices

The reason for the jump in affordability despite the market’s current issues? Trulia found it was historically low mortgage rates. And though those have seen an increase in recent months, today’s rates pale in comparison to those of the 1980s.

“It’s not your father’s housing market, at least regarding mortgage rates – and that’s a good thing,” Lee wrote. “In the 1980s, the country was experiencing massive inflation. The Federal Reserve responded by driving up interest rates, which in turn led to mortgage rates in the sustained double digits, up to 16.6 percent in 1981.”

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Where housing’s most affordable

Trulia also found that between 1990 and 2016, 22 major U.S. metros went from being unaffordable to affordable for the median household income. Only Miami became unaffordable in that time frame.

Metros that slipped into affordability included Allentown, Pennsylvania; Long Island, New York; Boston; Chicago; Hartford, Connecticut; Fresno, California; and more. High-priced markets like San Francisco and Seattle actually became more affordable in the last three decades as well, with San Fran affordability jumping 14 percent and Seattle’s rising 20 percent.

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And despite recent rising mortgage rates, it seems this trend toward affordability will only continue in the future.

“Recent record-low mortgage rates have created a buffer of affordability that has kept homes in most metros attainable – and at least has pulled in the reins on unaffordability in the nation’s priciest metros,” Lee wrote. “Mortgage rates would have to increase by 2.5 times over the 2016 rate, to 9.4%, for the median home to become unaffordable nationally.”

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