Median Home Prices Unaffordable for Average Wage Earner
Home ownership consumes 32.5% of wages in fourth quarter 2019
The fourth quarter 2019 U.S. Home Affordability Report, released in mid-December by data provider ATTOM Data Solutions, shows that median home prices in the fourth quarter of 2019 were unaffordable for average wage earners in 344 of 486, or 71% of the U.S. counties analyzed in the report. The figure represents a slight improvement from previous reports. It was down from 73% in third quarter and 75% from a year earlier.
The report analyzes median home prices from publicly recorded sales deed data collected by ATTOM Data Solutions and average wage data from the U.S. Bureau of Labor Statistics in 486 U.S. counties with a combined population of 235.2 million.
The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments on a median-priced home, assuming a 3% down payment and a 28% maximum “front-end” debt-to-income ratio. “Payment” included mortgage, property taxes and insurance. Average 30-year fixed interest rates from the Freddie Mac Primary Mortgage Market Survey were used to calculate the monthly house payments. The required income was compared to annualized average weekly wage data from the Bureau of Labor Statistics.
“Home prices rose across the country by 9% year-over-year in the fourth quarter of 2019, and the typical home remained a financial stretch for average wage earners. However, homes were actually a bit more affordable because of declining mortgage rates combined with rising pay to overcome the continued price run-up,” said Todd Teta, chief product officer with ATTOM Data Solutions. “As long as people are earning more money and shelling out less to pay off home loans, the market should remain strong with prices continuing to rise, at least in the near term. Those are big ifs, but for now this report offers some decent findings for both home seekers and home sellers.”
The largest populated counties where a median-priced home in the fourth quarter of 2019 was not affordable for average wage earners included Los Angeles County, California; Maricopa County (Phoenix), Arizona; San Diego County, California; Orange County, California (outside Los Angeles); and Miami-Dade County, Florida.
The 142 counties (29% of the 486 counties analyzed) where a median-priced home in the fourth quarter of 2019 was affordable for average wage earners included Cook County (Chicago) Illinois; Harris County (Houston), Texas; Wayne County (Detroit), Michigan; Philadelphia County, Pennsylvania; and Cuyahoga County (Cleveland), Ohio.
Home Price Appreciation Outpacing Wage Growth
Home price appreciation outpaced average weekly wage growth in 369 of the 486 counties analyzed in the report (76%). The largest counties where this occurred were Los Angeles County, California; Cook County, Illinois; Harris County (Houston), Texas; Maricopa County, Arizona; and San Diego County, California.
On the other hand, average annualized wage growth outpaced home price appreciation in 117 of the 486 counties (24%), including Orange County, California; Miami-Dade County, Florida; Kings County (Brooklyn), New York; Queens County, New York; and Santa Clara County (San Jose), California.
Wages Needed to Buy a Home
Among the 486 counties analyzed during the reporting period, 311 (64%) required potential homebuyers to allocate at least 30% of their annualized weekly wages to the purchase. Counties requiring the greatest percent included:
- Marin County, California (outside San Francisco; 111.2% of annualized weekly wages needed to buy a home)
- Kings County, New York (103.6%)
- Santa Cruz County, California (outside San Jose; 103%)
- Monterey County, California (outside San Francisco; 88%)
- Maui County, Hawaii (84.9%)
A total of 175 counties in the report (36%) required less than 30% of potential homeowners’ annualized weekly wages to buy a home. Counties requiring the smallest percent included:
- Baltimore City/County, Maryland (11.2% of annualized weekly wages needed to buy a home)
- Bibb County (Macon), Georgia (12.4%)
- Rock Island County (Davenport), Illinois (14.4%)
- Wayne County (Detroit), Michigan (15.2%)
- Richmond County (Augusta), Georgia (15.2%)
