Home affordability is at its lowest level since 2007, according to a new report from ATTOM Data Solutions.
According to a report from a real estate data analytics company, costs associated with homeownership, such as mortgages, home insurance and property taxes, currently take up 35.1% of a homeowner’s take-home pay.
This percentage is up from 32.1%. This time last yearThat’s significantly higher than the 28% that most lenders use as a guideline for determining mortgage eligibility.
In some parts of the country, the figure is even higher: ATTOM notes that more than a third of Americans spend 43% of their salary on housing.
“The latest home affordability data presents a clear challenge for homebuyers. Home prices are rising and mortgage rates remain relatively high, but these factors are making housing more affordable,” ATTOM CEO Rob Barber wrote in the report. “We often see these trends intensify during the spring buying season when buyer demand increases. However, this year’s trends have been particularly challenging for prospective homebuyers, more so than at any point since the housing market boom began in 2012.”
Home prices are rising faster than wages
Part of the problem is that wages have not kept pace with residential real estate prices.
ATTOM found that in nearly half of the counties included in the report, annual home price growth far outpaced wage growth, with the gap most pronounced in areas including Los Angeles County, California; Cook County, Illinois; and Maricopa County, Arizona.
It’s not just monthly mortgage payments that are putting a heavier burden on homeowners than usual: home maintenance costs are also rising. When you factor these figures in, homeowners are spending 43% of their salary on housing, which ATTOM considers “totally unaffordable.”
Certain areas are less affordable than others
It’s no surprise that the West and Northeast are some of the most expensive regions in the country to house. In Santa Cruz County, California, homeowners need to earn 113.8% of the annual local wage to buy a home. In other words, that’s more than many people earn. The same is true in Kings County, New York, where residents need to spend 111.8% of the annual local wage to maintain their home.
But it’s not all bad news: Homeowners in areas like Cambria County and Schuylkill County, Pennsylvania, pay the least out of their paychecks, at $20,668 and $27,277 per year, respectively.
That being said, housing remains less affordable in nearly every market across the country than it has been in nearly two decades.
“In today’s housing market, buyers are still facing rising home prices,” says Daniel Hale, chief economist at Realtor.com. For first-time homebuyers, “when choosing between renting or buying, monthly costs are tilted in favor of renting in all 50 metro areas examined in a recent Realtor.com study.”
Real estate agent Mike Wall has seen the effects firsthand in Dayton, Ohio, and says the trend of declining home affordability nationwide is “unmistakable.”
“While our region has not escaped rising home prices, the impact has not been as pronounced as in larger metropolitan areas,” he says, echoing ATTOM’s findings. “Compared to cities like San Francisco and New York, Dayton remains relatively affordable, but prices have certainly been rising steadily.”
Hopes for home buyers
But that doesn’t mean there’s no hope, especially if you already own a home and are looking to buy another one.
“With home equity at record levels, current homeowners are able to use this capital to cushion some of the pain from rising mortgage rates. In fact, down payments are higher than they were a year ago, suggesting that some buyers are taking this route,” Hale notes.
To offset the high costs, hopeful first-time home buyers have had to get creative to afford their new homes.
“Many are borrowing from family members to cover down payments and expenses,” Wall said. “Some are adjusting their expectations, for example buying smaller homes or homes that need renovations that they might have passed up in a soft market.”
He said more buyers were also looking at non-traditional options such as rent-to-own, or looking outside city centres where prices were more affordable.
“For housing to become more affordable, more housing needs to be built,” Hale adds. “According to estimates from Realtor.com, the U.S. is 2.5 to 7.2 million homes short of what was needed to accommodate the growth in households over the past decade. Homebuilders are working to close the housing shortage, and are adjusting the locations and features of new homes to create a more affordable supply.”
For example, 48% of new homes sold in May 2024 were priced under $400,000, compared to just 43% the year before.
“However, while home prices are rising, one benefit of today’s housing market is that those seeking affordability have more options,” Hale says. “As of May 2024, the total number of homes for sale increased 35.2% year over year, while the number of homes in the more affordable $200,000 to $350,000 range increased 46.6%. More homes in relatively affordable price ranges will provide consumers with some relief from relentlessly rising costs.”
