Despite increasing home prices, housing affordability improved in many markets the third quarter of 2017, but the national average remains at a decade-low, according to the Q3 2017 U.S. Home Affordability Index from ATTOM Data Solutions, a multi-sourced property database.
Affordability improved from the second quarter in 60% of the 406 counties analyzed in the report, however, while 2017 might be beginning to cool, it is still down from last year in 79% of markets, the report showed.
But ATTOM wasn’t the only one to note the annual drop in affordability.
Affordability decreased in July as low levels of housing inventory pushed home prices up, and the housing market should prepare for further affordability drops in the future, First American Financial Corp., a provider of title insurance, settlement services and risk solutions for real estate transactions, said in a new report.
ATTOM’s national home affordability index remained at 100 in the third quarter, the lowest level since the third quarter of 2008. An index of 100 means the share of average wages needed to buy a median-priced home nationwide in Q3 2017 is on par with historic averages.
The ATTOM Home Affordability Index analyzes median home prices derived from publicly recorded sales deed data and average wage data from the U.S. Bureau of Labor Statistics in 406 U.S. counties with a combined population of more than 212 million. The affordability index is based on the percentage of average wages needed to make monthly house payments on a median-priced home with a 30-year fixed rate mortgage and a 3% down payment, including property taxes, home insurance and mortgage insurance.
“Falling interest rates in the third quarter provided enough of a cushion to counteract rising home prices in most U.S. markets and provide at least some temporary relief for the home affordability crunch,” ATTOM Senior Vice President Daren Blomquist said.
“More sustainable relief for the affordability crunch, however, will need to be some combination of slowing home price appreciation and accelerating wage growth,” Blomquist said. “Wage growth is outpacing home price growth in about half of all local markets so far this year, an indication that a more sustainable affordability pattern is taking shape in more local markets.”
Although home prices have continued to increase, annual wage growth outpaced home price appreciation in 193 of the 406 counties, or 48%, during the third quarter. This is down from 53% of counties during the second quarter and from 50% of counties in the third quarter of 2016.