Type the term “affordable housing” into Google and 87.6 million or more results will come up in the search.
A day doesn’t go by that we don’t see, hear, talk about affordability, or the lack of it, when it comes to housing rents, prices, trends, etc. Especially at a moment where economic, regulatory, tax, capital flow, demographic, and cultural shifts are playing out, looking ahead at whether this year’s bets on residential real estate investment will pay off as expected or not is cause for high anxiety.
This New York Times piece, “2018: A Tough Year for First-Time Buyers,” by Jen A. Miller, looks at a first-time home purchase as a vortex of four forces, each of them opposed to young buyers’ goal of finding a home he, she, or they both love and can afford. Those four forces–tax law changes, low inventory, tight credit, and rising interest rates–add up to stress on both the quality of house they’re looking at and the amount they’ll have to put down and pay on a monthly basis for what they get.
NY Times staffer Miller writes:
2018 presents a new set of problems for rookie home buyers: a new tax law whose full effects have yet to be felt on homeowner taxes or property values; record low inventory; tough credit; and rising mortgage rates.
Those problems, paired as they are with other financial hurdles like–on average–having to pay off college debt and–on average–having to pay upwards of $93,000 on rent in the eight years from college graduation to age 30, give rise to all this talk of affordability.
The National Association of Home Builders observes that in 2017, its measures of home purchase affordability ran flat with the prior year, meaning that slightly fewer than six in 10 home sales–new and existing–were affordable to households earning the nation’s median income of $68,000.
Those measures precede, however, the real effects that rising interest rates, lost tax benefits, and higher prices due to global trade dislocation and other factors can have on monthly payments.
What’s more, although household incomes have been rumored to be gaining momentum, what’s going into people’s paycheck hasn’t reflected much of a boost compared with spiraling house prices.
Still, with all the variables in flux, rigor and discipline around the data–and what it’s saying–is important.
This is why it’s worth it–especially if you want to remain encouraged about the real wherewithal of young home buying prospects vis a vis the entry-level communities–to have a look at an analysis, “Is the Entry-Level Affordability Crunch Real?” in the latest The Z Report from Zelman & Associates (click here for a free trial).
Zelman analysts acknowledge genuine and material widening in the gap that separates recent trends in monthly payment calculations and household income growth, and they also note that mortgage financing costs are still rising, which might further expand that gap.
However, when it comes to conjecture on what factors may wind up influencing entry-level buyer behavior and trends in the months ahead, the Zelman take adds a critical filter of rigor to the data and what it’s measuring.
Namely, depending on what time period one chooses, the relationship between monthly payment average trends and household wage trends is either more or less favorable to affordability, crisscrossing again and again through the economic cycles. Remove the “selection bias” of a time-period effect, Zelman analysts say, and that correspondence between income growth and monthly payment increases evens out.

“The point is that housing and affordability are cyclical and the collective trend is more important than cherry picking instances within a cycle. Consider that if we consolidate the three periods mentioned from 1999-2017, which includes two onerous affordability cycles for entry-level buyers and only one beneficial one, the average annual change in income of 2.7% was easily better than a 2.1% increase in monthly payments. The current monthly payment could increase another 12% before these ratios balanced.”

We’re honored that Ivy Zelman will join us as a keynote speaker and participant in the upcoming Housing Leadership Summit–48 days and counting–at the Ritz Carlton Laguna Niguel, at Dana Point, Calif., on May 14-16. Especially as offsetting and countervailing economic, supply and demand, and consumer confidence forces play out over the next stretch of housing’s recovery, the kind of discipline and evidence basis Ivy Zelman has made her signature will be a valuable tool for decision-making.
Affordability, for many people who are priced out, or overburdened as they pay close to half of their take-home pay on rent or home payments, is an issue.
Affordability, for others, is a negotiating position.
Builders will need to get very good at understanding which is which over the next couple of years. What’s more, those builders who will thrive beyond the next couple of years will need to–profitably–have a value proposition for both groups. If builders don’t, someone else will.