Eighteen percent of U.S. county housing markets were less affordable than their historically normal levels in Q2 2016, up from 5 percent of markets in the previous quarter but down from 20 percent of markets exceeding historically normal home affordability levels a year ago. This data comes from a new Home Affordability Index released this past week.
The affordability index was based on the percentage of average wages needed to make monthly house payments on a median-priced home with a 30-year fixed rate and a 3 percent down payment — including property taxes and insurance.
Out of the 417 counties analyzed in the report, 74 counties (18 percent) had an affordability index below 100 in the second quarter of 2016, meaning buying a median-priced home was less affordable than the historically normal level for that county going back to the first quarter of 2005. That was up from 22 counties (5 percent) exceeding historically normal affordability levels in Q1 2016 but down from 82 counties (20 percent) exceeding historically normal affordability levels in Q2 2015.
Although nearly one in five U.S. housing markets was not affordable by historic standards in the second quarter, the good news is that affordability is improving compared to a year ago in the majority of markets thanks to a combination of slowing home price appreciation and accelerating wage growth, along with falling interest rates. The average interest rate on a 30-year fixed rate mortgage is down 37 basis points from a year ago, while annual wage growth accelerated compared to a year ago in 72 percent of the markets we analyzed and annual home price growth slowed compared to a year ago in 68 percent of the markets, including bellwether markets such as Los Angeles County, Miami-Dade County, Brooklyn, Dallas County, and San Francisco County.
For example in San Francisco County, annual home price appreciation slowed to 2 percent in the second quarter of 2016 compared to 21 percent in the second quarter of 2015 even while annual wage growth accelerated from 5 percent to 6 percent. Affordability constraints are beginning to rein in home price appreciation even while wage growth is gaining speed in an increasing number of markets.
Wage growth outpaced price growth in 55 percent of counties
Annual wage growth outpaced annual home price growth in 228 of the 417 counties analyzed (55 percent), including Miami-Dade County, Fla.; Kings County, N.Y. (Brooklyn); Santa Clara County, Calif. in the San Jose metro area; Wayne County, Mich. in the Detroit metro area; and Bexar County, Texas in the San Antonio metro area.
Prior to Q2 2016, annual home price growth had outpaced annual wage growth in more than half of the 417 counties analyzed for 16 consecutive quarters going back to Q2 2012.
Annual home price growth still outpaced wage growth in 189 of the 417 counties (45 percent), including Los Angeles County, Calif.; Cook County, Ill. in the Chicago metro area; Harris County, Texas in the Houston metro area; Maricopa County, Ariz. in the Phoenix metro area; and San Diego County, Calif.
Markets least affordable by absolute standard led by Brooklyn, San Francisco, Santa Cruz
Buying a median priced home in the second quarter of 2016 required 35.4 percent of average weekly wages on average across all 417 counties analyzed for the report.
Counties least affordable by the absolute standard of percentage of wages needed to buy a median priced home were Kings County (Brooklyn), New York (121.7 percent of average weekly wages to buy a median-priced home); Marin County, Calif. in the San Francisco metro area (118.1 percent); Santa Cruz County, Calif. in the Santa Cruz metro area (113.5 percent); San Francisco County, Calif. (94.6 percent); and Maui County, Hawaii (92.8 percent).
Other counties among the top 25 least affordable by historic standards included counties in Los Angeles, Honolulu, Sacramento, San Diego, and San Jose.
Markets most affordable by absolute standard led by Atlanta, Detroit, Baltimore
Counties most affordable by the absolute standard of percentage of wages needed to buy a median-priced home were Clayton County, Ga. in the Atlanta metro area (10.4 percent of average weekly wages to buy a median-priced home); Wayne County, Mich. in the Detroit metro area (10.9 percent); Baltimore City, Md. (11.6 percent); Bay County, Mich. in the Bay City metro area (12.3 percent); and Rock Island County, Ill. in the Davenport-Moline-Rock Island metro area (12.4 percent).
Other markets among the top 25 most affordable by absolute standards included counties in Philadelphia, Cleveland, Milwaukee, Cincinnati and St. Louis.