When 91% of housing markets at the county level are more affordable than they've been historically, the math would suggest that median home prices--compared with area household wages--are massively affordable.
Shouldn't the media talk-track then be about how affordable housing is in much of America?
There are three good reasons that that is not the talk-track, and one not-so-good but meaningful reason. Let's take that one first. The media. When nine-out-of-10 times something is the case, the far sexier story is the one out of 10 exception to the rule. Media will always gravitate to the exception.
Like it or not, residential real estate's underpinnings of consumer confidence tend to be sensitive to media "headline risk," so the zeal of journalists to focus on the exception rather than the rule can take on a life of its own in the market dynamic. That can have a real effect on whether someone gets up in the morning and feels like it's a good day to buy a home.
How about we explore the three "good" reasons people are not abuzz about how affordable housing is right now?
We can refer to the freshly minted RealtyTrac "Q1 2016 Home Affordability Index," which, by golly, notes that in Q1 2016, 9% of U.S. county housing markets were less affordable than their historically normal levels.
So there we have the data. In only 43 of 456 counties analyzed, affordability clocks in at below-par historically, which accounts for the 9%.
We have to ask how that 9% has so many people talking about an affordability problem in for-sale housing. The first good reason comes from just a little bit of context.
Slide back a year ago for that context, and you'll see that only 9 or so counties--about 2%--fit the billing as unaffordable compared with history. So, the change in 12 months is more than four-times greater in magnitude.
Is that the trend now, or is it an anomalous blip? One way or another 9% of the total by itself is far more benign looking than four-and-a-half times growth, year-over-year. That's malignant.
For "good reason" number 2, we have to ask ourselves, beyond the 12-month jump, whether the particular 43 counties that rank as unaffordable compared with history and compared with median household income patterns in those markets is meaningful.
RealtyTrac vp Daren Blomquist zeroes in on some of the culprit markets here.
The top 20 county housing markets least affordable in the first quarter of 2016 compared to their historic affordability norms included counties in Denver; New York City; Omaha, Nebraska; Austin, Texas; Dallas; San Francisco; and St. Louis.
The five most-populated county housing markets less affordable than their historic norms were Kings County, New York (Brooklyn); Dallas County, Texas; New York County, New York (Manhattan); Alameda County, California in the San Francisco metro area; and Oakland County, Michigan in the Detroit metro area.
The marquee value of many of these markets helps explain their perhaps outsized influence on the affordability vs. lack of affordability talk track.
Now, the third "good reason" unaffordability seems to be gaining purchase as a characteristic of the market deals with the numbers that go into the construct of affordability indexes themselves. Peel back a layer or two of the "compared with history" assumptions, and we find there to be a problem.
In other words, if you put home price tags and interest rates together into a monthly-payment context, we see that historically low current interest rates may distort the simple relationship between who can afford to pay for a home based on their present household wages, and who could do so if and when mortgage rates drift back up to their historic norms.
By some analyses, home prices combined with surreally low interest rates have detached almost in bubble territory from median wages. It's just to say that there's risk--and many are well aware of it--around what happens with the trajectory of interest rates right now. They seem far more certain, at some point, of going up than household wages themselves do.
Finally, it's important, when talking about affordability to talk about it not so much in an economic and statistical sense to understand it. It's critical to grasp the perceptual, the human factor, real-world on the ground sense of the term.
We can brand a marketplace as "affordable" whenever we want. It's just that real live customers are the ones who put us into business (or not) based on how well we deliver on the promise of that brand.