The National Association of Realtors® and realtor.com® were out Wednesday with a new metric designed to examine affordability at different income levels across all markets nationally, and, not surprisingly, it shows homes are less generally less affordable than they were at this time last year.
Using data on mortgages, state and metro area-level income and listings on realtor.com®, the pair created the Realtors® Affordability Distribution Curve and Score in which a score of one or higher generally suggests a market where homes for sale are more affordable to households in proportion to their income distribution.
According to March data, the states with the lowest Affordability Score were Hawaii (0.52), California (0.57), Oregon(0.60), and the District of Columbia, Montana and Rhode Island (all at 0.64). In these areas, households at the median income level can afford only 19% to 23% of the active housing inventory. The states with the highest Affordability Score were Ohio (1.12), Indiana (1.09), Kansas (1.09), Iowa (1.07), and West Virginia (1.05). In these areas, a typical household can afford 54% to 62% of the active housing inventory currently on the market.
By looking at the data by metropolitan statistical area (MSA), more metro areas experienced weakening (45) affordability conditions compared to improving conditions (35) from a year ago. The markets with the lowest affordability scores include Los Angeles-Long Beach, California (0.35), San Diego-Carlsbad, California (0.37), San Jose-Sunnyvale, California(0.43), Oxnard-Thousand Oaks-Ventura, California (0.45) and San Francisco-Oakland, California (0.48), where a typical household can only afford 3% to 11% of the active housing inventory.
The Youngstown-Warren, Ohio-Pennsylvania market had the highest Affordability Score at 1.25, followed by Dayton, Ohio(1.19), Toledo, Ohio (1.18), Akron, Ohio (1.16), and Scranton-Wilkes-Barre, Pennsylvania (1.11). In these areas, the typical household can afford nearly 75% of the homes that are currently on the market.
Lawrence Yun, NAR chief economist found a notable imbalance between what potential home buyers can afford and what is listed for sale. "The survey confirms that the lack of entry-level supply is putting affordability pressures on too many buyers – especially those at the lower end of the market, where demand is the strongest. This is why first-time buyers continue to struggle finding affordable properties to buy and are making up less than a third of home sales so far this year," said Yun.
The Affordability Score decreased nationally from 0.86 to 0.84 between March 2017 and March 2018, because of rising prices across the country and a spike in mortgage rates. However, 14 states had better affordability compared to a year earlier, with the greatest increase in affordability in the District of Columbia (from 0.59 to 0.64), Vermont (from 0.81 to 0.84) Hawaii (from 0.50 to 0.52) and North Dakota (from 0.95 to 0.97). Thirty-five metro areas had better affordability compared to a year earlier, led by Austin-Round Rock, Texas (from 0.55 to 0.66), Syracuse, New York (1.04 to 1.1), North Port-Sarasota, Florida (0.60 to 0.66) and Palm Bay-Melbourne, Florida (0.71 to 0.77).
"We've seen affordability improve as inventory declines have begun to lessen these areas. More balanced supply and demand dynamics have kept listing price growth below the national average, providing some much needed relief for stretched home buyers in these areas," according to Danielle Hale, chief economist for realtor.com®.
"Wages are growing, which is welcome news for prospective buyers, but prices are increasing at a faster rate, up almost 6% in the first two months of 2018. Solutions to improve these conditions include more homeowners selling, investors releasing their portfolio of single-family homes back onto the market and more single-family housing construction," Yun said.
