U.S. Home Affordability Drops to Nine-Year Low

  • Home prices grew by 7.7 percent on an annual basis in the second quarter, while wages dropped by 1.4 percent.
  • Year-over-year home price growth outpaced wage growth in 87 percent of U.S. housing markets, including eight of nine Bay Area counties.
  • The average Marin County household needs to spend 126.4 percent of its wages to afford the median-priced home, the most of any county in the nation.

Second-quarter home price growth outpaced wage growth throughout most of the country — including the Bay Area — further eroding already challenging affordability conditions.

ATTOM Data Solutions’ latest U.S. Home Affordability Index fell to 100 in the second quarter, the lowest since the third quarter of 2008. That indicates that the share of wages needed to afford the median-priced home is on par with its historic average. An index reading higher than 100 means that a market is still more affordable than its historic norm, while a reading below 100 indicates that it is less affordable.

The U.S. median home price ended the second quarter at $253,000, up 7.7 percent from one year ago. Wages slipped by 1.4 percent on an annual basis in the fourth quarter of 2016 — the latest quarter for which data is available — and were down in 87 percent of the 464 counties that ATTOM Data Solutions tracks.

“That combination of accelerating home price growth and slowing wage growth, along with mortgage interest rates that are up nearly 50 basis points from a year ago, eroded home affordability nationwide to the lowest level in nearly nine years, and pushed the highest share of markets beyond the threshold of normal affordability in nearly eight years,” ATTOM Data Solutions Senior Vice President Daren Blomquist said.

Annual home price appreciation outstripped wage growth in all Bay Area counties except for San Francisco, where prices grew by 4 percent and wages were up by 5 percent. Wage growth was stagnant in San Mateo and Contra Costa counties, while earnings dropped in Alameda, Solano, Napa, and Sonoma Counties. Marin and Santa Clara counties saw respective year-over-year wage growth of 3 percent and 1 percent.

Eight of nine Bay Area counties were less affordable than their historic average in the second quarter, with index numbers ranging from 84 in Marin County to 95 in Santa Clara County. Only Solano County is slightly more affordable than the historic norm, with an index reading of 101.

All nine Bay Area counties require a larger percentage of average wages to purchase the median-priced home than the 43 percent threshold set by the Consumer Financial Protection Bureau. The average household in Marin County needs to spend 126.4 percent of its wages to afford the median-priced $1,160,000 home, the most of any county included in the report. Across the rest of the Bay Area, the percentage of wages needed to pay the mortgage ranges from 90 percent in San Francisco to 50.5 percent in Solano County.

(Image: iStock/RapidEye)

Shared with permission from the Pacific Union Blog