Irvine, Calif. -- ATTOM Data Solutions, curator of the nation's premier property database, recently released its Q3 2018 U.S. Home Affordability Report, which shows that the U.S. home prices in the third quarter were at the least affordable level since Q3 2008, a 10-year low.
The report calculates an affordability index based on percentage of income needed to buy a median-priced home relative to historic averages, with an index above 100 indicating median home prices are more affordable than the historic average, and an index below 100 indicating median home prices are less affordable than the historic average. Nationwide, the Q3 2018 home affordability index of 92 was down from an index of 95 in the previous quarter and an index of 102 in Q3 2017 to the lowest level since Q3 2008, when the index was 87.
Among 440 U.S. counties analyzed in the report, 78% posted a Q3 2018 affordability index below 100, meaning homes were less affordable than the long-term affordability averages for the county, the highest percentage of counties below historic affordability averages since Q3 2008.
"Rising mortgage rates have pushed home prices to the least affordable level we've seen in 10 years, both nationally and at the local level," said Daren Blomquist, senior vice president at ATTOM Data Solutions.
Prospective homebuyers would need to make $100,000 or more to buy a median-priced home in 69 of the 440 counties analyzed in the report (16%), assuming a 3% down payment and a maximum front-end debt-to-income ratio of 28%. This list of 69 counties was led by the five California Bay Area counties of San Mateo, San Francisco, Santa Clara, Marin, and Alameda. Following those five California counties were Westchester County, N.Y., and Kings County, Brooklyn, N.Y. Other counties where prospective homebuyers would need to make $100,000 or more to buy a median-priced home included counties in Southern California, Washington, D.C., Boston, Seattle and Hawaii.
Nationwide, the median home price of $250,000 in Q3 2018 was up 6% from a year ago, twice the annual growth of 3% in average wages. U.S. median home prices have increased 76% since bottoming out in Q1 2012 while average weekly wages have increased 17% over the same period. Meanwhile the average 30-year fixed mortgage rate is up 15% since Q1 2012 and up 17% just over the past year, according to the Freddie Mac Primary Mortgage Market Survey.
"As most buyers budget based on monthly payments, the median buyer is now able to bid significantly less than before," said Tendayi Kapfidze, chief economist at mortgage marketplace LendingTree, estimating that homebuyers are able to borrow 10% less than a year ago because of the rise in interest rates. "This means at each price point the number of buyers is falling, reducing demand. This has had immediate effects on the number of houses sold and will over time reduce the pace of home price increases. This is not cause for alarm however. Home prices have been outpacing incomes since 2012 at a pace that is unsustainable, and a period of consolidation is healthy for the housing market."
Nationwide an average wage earner would need to spend 37% percent of his or her income to buy a median-priced home in Q3 2018, above the historic average of 34.1%. Counties with median home prices requiring the highest share of average wage earner income were Kings County (Brooklyn), N.Y.; Marin County, Calif.; Santa Cruz County, Calif.; San Luis Obispo County, Calif. ; and Maui County, Hawaii. An average wage earner would not qualify to buy a median-priced home nationwide and in 84% of counties analyzed in the report based on a 3% down payment and a maximum front-end debt-to-income ratio of 28%.
For more information, visit www.attomdata.com.