In the second quarter of 2016, 18% of county housing markets were less affordable than their historically normal levels, according to the Q2 2016 Home Affordability Index from RealtyTrac.

Although this might be up from the 5% of counties in the first quarter of 2016, it is an improvement from last year’s 20% of counties.

The report analyzed median home prices from publicaly recorded sales deed data together with wages data from the U.S. Bureau of Labor Statistics in 417 U.S. counties with a combined population of almost 210 million.

The affordability index was based on the percentage of average wages needed to make monthly house payments on a median-priced home with a 30-year fixed rate and a 3% down payment, including property taxes and insurance.

Of the 417 counties analyzed in the report, about 18%, 74 counties, had an index below 100. In other words, buying a median-priced home was less affordable than the historically normal level for that county, dating back to the first quarter of 2005.

During the first quarter of 2016, only 5%, 22 counties, exceeded the historically normal levels, according to the report. Last year, however, 20%, or 82 counties, were above historically normal levels.

“Although nearly one in five U.S. housing markets was not affordable by historic standards in the second quarter, the good news is that affordability is improving compared to a year ago in the majority of markets, thanks to a combination of slowing home price appreciation and accelerating wage growth, along with falling interest rates,” RealtyTrac Senior Vice President Daren Blomquist said.

“The average interest rate on a 30-year fixed rate mortgage is down 37 basis points from a year ago, while annual wage growth accelerated compared to a year ago in 72% of the markets we analyzed and annual home price growth slowed compared to a year ago in 68% of the markets, including bellwether markets such as Los Angeles County, Miami-Dade County, Brooklyn, Dallas County, and San Francisco County,” he said.

“For example in San Francisco County, annual home-price appreciation slowed to 2% in the second quarter of 2016 compared to 21% in the second quarter of 2015, even while annual wage growth accelerated from 5% to 6%,” Blomquist added. “Affordability constraints are beginning to rein in home-price appreciation even while wage growth is gaining speed in an increasing number of markets.”

In fact, wage growth increased faster than home price growth in 228 counties, 55% of the total number.

Before this quarter, annual home-price growth increased faster than wage growth in over half of the counties for 16 consecutive quarters going back to 2012.

This chart shows markets where wage growth outpaced home-price appreciation back to the first quarter of 2006:

Click to Enlarge


(Source: RealtyTrac)

Overall, buying a median priced home in the second quarter of 2016 required an average of 35.4% of average wages across all 417 counties.