Rising home prices have pushed home buying out of reach on major US subways

Strong points
  • Following our recent review of national housing affordability trends, this study finds that none of the 11 largest metropolitan areas has a current typical payment share of income that exceeds the values ​​observed in 2008 and 2018, two periods when national payment shares were highest.
  • Additionally, although mortgage payments as a percentage of income are increasing, the 11 largest metropolitan areas currently have a higher payment share, lower than previous local highs.
  • Homebuyers in the Los Angeles metro area spent 13.4% of their additional monthly income on mortgage payments compared to last year, experiencing the biggest affordability issues.
  • Median selling prices are up more than 20% in the metropolitan areas of San Francisco, Atlanta, Los Angeles and Chicago, compared to last May. The weakest price growth was seen in the Philadelphia subway, but even there the typical selling price rose 8.4%.

As concerns over record house prices continue to rise across the country, a recent study by Realtor.com examined housing affordability issues at the national level. The study compared the current situation with historical records and found that homebuyers spent 21% of their income on housing payments in May 2021, higher than the monthly average for the past ten years (19.6%). , but still below historical peaks. This research also estimated that the increase in selling prices in July is expected to drive revenue payment shares to break the 2018 record (22%). In addition to rising prices, the potential for rising mortgage rates could push typical monthly costs to historically difficult levels, reaching an all-time high in 2008 (25%) if mortgage rates were to rise to 4.2%, a rate that was surpassed in 2018. In this research, we revisit the topic by examining whether homebuyers in the 11 largest metropolises in the United States are now surpassing themselves financially.

We use an income payment share to measure housing affordability. It compares median monthly mortgage payments for recent sales to the estimated median monthly household income at metropolitan levels. A higher value suggests that costs represent a larger proportion of family income each month, indicating a relatively less affordable housing market. Meanwhile, a lower share implies a much healthier housing environment.

Our national study concluded that the current lower interest rates mainly alleviated overextension issues, and this is also true for metropolitan areas. This report primarily focuses on the factors that vary across metro levels (i.e., selling price and down payment rates) and examines their impacts on local housing affordability.

AAccessibility issues increased the most in Los Angeles compared to last year

Figure 1 shows a set of results for the 11 largest metropolitan areas in the United States. While none of the regions hit all-time highs in May, many have clear upward trajectories. Table 1 compares the shares of monthly payments between May 2020 and May 2021. Affordability problems worsened most in Los Angeles, where May homebuyers spent 13.4% of their additional monthly income on payments. mortgage compared to last year. Buyers in Chicago and Atlanta are also facing higher mortgage payments than last May, as they spent 12.4% and 11.7% of their additional monthly income, respectively. There were a few exceptions. The Washington DC area housing market saw payment shares jump just 0.8%. In Philadelphia, stocks fell 1.2% from last May, suggesting buyers were facing slightly better affordability.

Figure 1: Income payment shares, 11 largest metropolitan areas

Table 1: Income payment shares, 11 largest metropolitan areas

Metropolitan areas May 2020 May 2021 Annual growth rate
Atlanta-Sandy Springs-Roswell, Georgia 17.7% 19.8% 11.7%
Boston-Cambridge-Newton, MA-NH 22.8% 25.0% 9.5%
Chicago-Naperville-Elgin, IL-IN-WI 15.7% 17.6% 12.4%
Dallas-Fort Worth-Arlington, Texas 17.4% 18.2% 4.8%
Houston-the Woodlands-Sugar, TX 16.0% 16.5% 3.1%
Los Angeles-Long Beach-Anaheim, California 36.0% 40.8% 13.4%
Miami-Fort Lauderdale-West Palm Beach, Florida 25.2% 26.7% 6.0%
New York-Newark-Jersey City, NY-NJ-PA 23.2% 24.6% 5.9%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 16.8% 16.6% -1.2%
San Francisco-Oakland-Hayward, California 31.4% 34.1% 8.5%
Washington-Arlington-Alexandria, DC-VA-MD-WV 19.6% 19.7% 0.8%

Surprisingly, the record selling prices have yet to put buyers at risk of exceeding previous historical norms. Additionally, the spreads could be even larger if current buyers have higher incomes and better credit scores than the typical metro area household compared to previous buyers, as this analysis uses the metropolitan area median income. instead of the income of home buyers.

Rising sales prices increase the risk of unaffordable housing

Our report at national level found that record home prices reduced affordability. Similar trends can be observed at metropolitan levels. Figure 2 shows the monthly payment shares and median house price trends for these subways. In May 2021, all median selling prices in these regions hit record highs. Specifically, as shown in Table 2, metro buyers in San Francisco, Atlanta, Los Angeles and Chicago experienced the most significant price inflation, all above 20% compared to last May. The Philadelphia metro area saw the smallest price increase, but growth was still as high as 8.4%. In addition, Figure 2 shows that payment shares and median selling prices have very similar upward trajectories over the past few months, suggesting that rising prices put buyers at high risk of overspending financially.

Figure 2: Income payment shares and median selling prices, 11 largest metropolises

Table 2: Median selling prices, 11 largest metropolitan areas

Metropolitan areas May 2020 May 2021 Annual growth rate
Atlanta-Sandy Springs-Roswell, Georgia 272,000 335,000 23.2%
Boston-Cambridge-Newton, MA-NH 505,000 595,000 17.8%
Chicago-Naperville-Elgin, IL-IN-WI 265,000 320,000 20.8%
Dallas-Fort Worth-Arlington, Texas 284,063 333,437 17.4%
Houston-the Woodlands-Sugar, TX 253,293 290,000 14.5%
Los Angeles-Long Beach-Anaheim, California 668,000 815,000 22.0%
Miami-Fort Lauderdale-West Palm Beach, Florida 335,000 380,000 13.4%
New York-Newark-Jersey City, NY-NJ-PA 459,000 537,000 17.0%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 285,900 310,000 8.4%
San Francisco-Oakland-Hayward, California 890,500 1,120,000 25.8%
Washington-Arlington-Alexandria, DC-VA-MD-WV 459,000 499,900 8.9%

The deposit is less worrying compared to the increase in sales prices in the metro

The other factor that varies by metro and can affect the affordability of housing is the down payment rate. A higher down payment rate suggests lower loan amounts and lower monthly payments when selling prices, mortgage rates, and other costs (i.e. insurance and taxes) remain constant. In other words, a decreasing deposit rate can result in higher monthly payments, which creates an affordability challenge. At National level, the median down payment rate in May was 13.3%, and we conclude that given current selling prices and mortgage rate levels, even reducing the down payment to 0 does not reach the peak of 2008. At the metro level, given the upward trends in recent months, as shown in Table 3, it seems that the down payment is a minor concern compared to the selling prices.

Table 3: Down payment rate, 11 largest metropolitan areas

Metropolitan areas May 2020 May 2021 Annual growth rate
Atlanta-Sandy Springs-Roswell, Georgia 5.5% 10.0% 80.8%
Boston-Cambridge-Newton, MA-NH 15.3% 18.5% 20.6%
Chicago-Naperville-Elgin, IL-IN-WI 8.5% 11.9% 39.9%
Dallas-Fort Worth-Arlington, Texas 18.6% 19.3% 3.3%
Houston-the Woodlands-Sugar, TX 18.4% 18.8% 2.0%
Los Angeles-Long Beach-Anaheim, California 17.8% 21.2% 19.4%
Miami-Fort Lauderdale-West Palm Beach, Florida 8.1% 14.0% 73.7%
New York-Newark-Jersey City, NY-NJ-PA 14.6% 17.1% 17.2%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 8.3% 10.6% 28.2%
San Francisco-Oakland-Hayward, California 22.5% 24.6% 9.3%
Washington-Arlington-Alexandria, DC-VA-MD-WV 7.6% 9.2% 21.3%

Methodology:

Mortgage amounts and sale prices are obtained from Realtor.com’s public records database through May 2021. The down payment is derived from the difference between the sale prices and the mortgage amounts. Sales to companies and businesses are excluded. We assume that all sales are less than 30 year fixed rate mortgages and apply the going national rate to the mortgage amounts to estimate the monthly payment. We take the median at metropolitan levels to represent the monthly payments for all sales, and the monthly payments consist of the principal and estimated mortgage interest (excluding taxes and insurance). Median household income data comes from Moody’s Analytics.


Jiayi Xu,

Danielle HaleDanielle Hale,

Sabrina speianuSabrina speianu


Source link

Comments are closed.