As a decade-long economic boom pushes into 2020, affording a home isn’t expected to become much easier for the average American, according to recent reports.
Average wage earners can’t afford to buy a home in 344 of 486 counties, or 71% of the U.S., according to a fourth-quarter analysis from real estate research firm Attom Data Solutions. That’s just a slight improvement from from 73% in the third quarter and 75% a year earlier, the Attom report found.
One reason for the glacial pace of improvement? A booming real estate market amid lower mortgage rates.
Home prices rose 9% year-over-year in the last three months of 2019, making the “typical home” a “financial stretch for average wage earners,” Todd Teta, chief product officer with Attom, said in the report.
To cross the current national median home price of $257,000, homebuyers need a gross income of $67,647, the report said — yet the average annual wage in the U.S. was $58,214, the report notes.
That can be punishing math for the typical homebuyer.
(Speaking of math: Attom determined housing affordability by calculating the amount of income needed to make monthly house payments — mortgage, property taxes and insurance — on a median-priced home, assuming a 3% down payment and a 28% debt-to-income ratio. Income was compared to annualized average weekly wage data from the U.S. Bureau of Labor Statistics.)
Home prices to climb in 2020
Though homes are “actually a bit more affordable” in recent months, prices are expected to keep climbing “in the near-term,” Teta noted.
Attom isn’t alone in its prediction. Another analysis from real estate site Zillow predicts home values will rise about 2.2% in 2020.
One reason for the tightening market: “underbuilding” of new housing stock because of higher labor and land costs, according to a statement from the National Association of Home Builders.
That’s even as real estate markets continue to improve across the country and confidence in most U.S. markets remains at 20-year highs, Robert Dietz, the NAHB’s chief economist, said in the statement.
A steady drop in the 30-year mortgage rate to about 3.8% last month from 4.9% just a year ago is stoking demand, helped by a cut in lending rates thoughout 2019 by the Federal Reserve to sidestep the threats of a potential recession stemming from a slumping global economy and the uncertainties surrounding President Donald Trump’s trade war with China.
Lower lending rates mean it’s less expensive to finance a 30-year mortgage. Lower financing costs can make it easier for buyers to swallow higher hime prices.
Sales of newly built homes rose 1.3% in November, a sign that lower mortgage rates this year are helping push purchases and prices higher. Sales of existing homes dropped 1.7% last month, considered a sign of shrinking supply, not shrinking demand. Combined, the figures signal there aren’t enough homes on the market at prices low enough to meet burgeoning demand.