Housing costs surged in the first half of this year, exacerbating long-standing affordability concerns, according to a new report from real estate data provider Attom.
After dropping or flatlining in the nine previous months, the national median home price accelerated 10.2% to $350,000 from $317,496 between the first and second quarters this year, Attom said. The upswing was one of the largest quarter-over-quarter increases in the last 10 years and raised the median 2% higher.
“The U.S. housing market has done an about-face following a downturn that threatened to usher in an extended period of flat or falling prices,” Attom CEO Rob Barber said in a press release. “With that has come another blow to how much house the average worker around the country can afford.”
Approximately 33.4% of the average salary is now needed to make the monthly mortgage payments on a median-priced home, surging up from 29.9% on both a quarterly and annual basis. Early in 2022, only 25% of typical wages were required. But that was prior to the rapid ascent of interest rates to above 6% in the second half of the year, which quickly put homeownership out of reach for many consumers. The latest number exceeds the 28% debt-to-income ratio threshold that Attom considered affordable.
Attom’s findings are the latest evidence that the dip in prices economists expected to occur this year hasn’t materialized. Multiple price indexes released earlier in June showed slower, but sustained, monthly growth of home prices since the start of the year.
“Whether this is just a temporary blip amid this year’s peak buying season or a sign of another extended price surge is anyone’s guess. But any predictions of a market demise were certainly premature — and house hunters are feeling the pinch,” Barber said.
The lack of affordability and supply has proven to be a thorn in the side of the housing industry, with Attom’s research mirroring data from the Federal Reserve Bank of Atlanta. While record demand kept prices high in 2021 and early 2022, a reluctance among many current homeowners to relocate and give up low interest rates is behind the current shortage of inventory, keeping housing costs up. Real estate brokerage Zillow estimates 4.3 million more homes are needed to meet demand.
The combination of prices and current interest rates continue to drive up average monthly payments this year. While Attom determined the typical monthly payment on a home purchase, inclusive of interest rates and fees, to be $1,949, the Mortgage Bankers Association found it even higher last month based on analysis of its member survey data.
The MBA’s latest monthly Purchase Applications Payment Index headed higher 2.5% to an average of $2,165 in May, up from $2,112 a month earlier. The number climbed higher for the fifth straight month, setting another record. On a year-over-year basis, the average payment was 14.1% higher from $1,897.
Among borrowers of Federal Housing Administration-backed mortgages, average payments increased to $1,802 last month, up 3% from $1,750 in April, and 26% from $1,430 a year ago, the MBA said.
Payments for conventional loan applicants shot up to $2,202 last month, compared to $2,170 in April and $1,960 on an annual basis. May’s amount was up 1.4% and 12.3%, respectively.
Home affordability was at its weakest in the Western U.S., with Nevada’s index score the highest, followed by Idaho; Arizona. California and Florida rounded out the “top” five.
On the other end, the states where affordability based on payments relative to income, came in highest were Connecticut, West Virginia, Alaska, Louisiana and Wyoming.
Areas where ownership expenses on the typical home would be considered affordable to the average wage earner was found in approximately three-quarters or 420 of the 574 counties nationwide, the Attom report found. But on a more positive note, it also said weekly wage appreciation in the same percentage of counties is still outpacing the price changes.
When supply eventually increases, the trend may bode well for aspiring homeowners. “We do expect that inventory will pick up in the near term, which will provide more opportunities for borrowers to buy a home,” said Edward Seiler, the MBA’s associate vice president, housing economics, and executive director of Research Institute for Housing America.
