Average earner would struggle to buy home on their own in 68% of counties: study

As home price growth outpaces wage growth, many buyers are moving away from the coasts in search of more affordable markets

Attom Data Solutions released the results of its Q1 2018 U.S. Home Affordability Report, which showed that average wage earners ($57,009) could not afford a median-priced home in 68 percent of U.S. counties (304 out of 446).

Attom determined “affordability” by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes and insurance — on a median-priced home with a 3 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio.

One thing the study did not take into account was how these wage earners would fare if they were buying a house with a partner who may bring more income to the table. Wage data derived from the U.S. Bureau of Labor Statistics (BLS) was used to determine average income for one person. (Similar data “is not available for a two-income household,” explained an Attom spokesperson.) According to the National Association of Realtors, 66 percent of recent buyers were married couples, and eight percent were unmarried couples, meaning only about a quarter of recent buyers purchased a home on their own.

High home prices are a catalyst for migration

In response to rapid home price growth, the report revealed that average wage earners are quickly leaving coastal metros for more affordable locales in the West and South.

“Home affordability continues to be a symptom relating to a cultural divide of wage earners,” First Team Real Estate president Michael Mahon told Attom.

“Median wage earners are finding coastal communities unaffordable across Southern California, which is driving migration of the consumer population to create housing demand booms in such counties as Riverside County — recently recognized as one of the fastest growing counties in the state,” he added.

California and New York experienced the highest negative net migrations with 29,246 residents leaving New York’s Kings (Brooklyn) and New York (Manhattan) counties, and 9,309 residents leaving California’s Santa Clara (San Jose) and Orange County counties.

On the other hand, Maricopa County (Phoenix), Arizona experienced the largest net migration increase at 49,770 new residents, followed by Clark County (Las Vegas), Nevada (+36,635); Riverside County, California (+23,397); Denton County, Texas in the Dallas metro area (+21,333); and Hillsborough County, Florida, in the Tampa-St. Petersburg metro area (+20,603).

What does it take to afford a home?

The affordability index decreased year-over-year in 73 percent (326 out of 446) of U.S. counties included in the report, meaning that homes are more expensive than they were the previous year.

Nationwide, average wage earners would need to spend 29.1 percent of their income to buy a median-priced home — a 0.5 percentage point decrease from Q1 2017.

However, as home price appreciation outpaces wage growth in 83 percent of markets, some owners are spending over 100 percent of their income on housing costs.

Average earners in Kings County (Brooklyn), New York spend the largest share of their income (119.0 percent) on housing, followed by Santa Cruz County, California (108.8 percent); Marin County, California in the San Francisco metro area (106.3 percent); Maui County, Hawaii (94.1 percent); and New York County (Manhattan), New York (92.5 percent).

On the other hand, some average wage earners are spending as little as 10.2 percent (Baltimore City, Maryland) of their income on housing.

Bibb County (Macon), Georgia (11.0 percent); Wayne County (Detroit), Michigan (11.3 percent); Clayton County, Georgia in the Atlanta metro area (12.0 percent); and Rock Island County (Quad Cities), Illinois (13.4 percent), rounded out the most affordable list.

Attom Data Solutions senior vice president Daren Blomquist says earners aspiring to purchase in affordable markets should buy as soon as possible, since demand from out-of-state buyers will drive up home prices.

“Coastal markets are the epicenter of the U.S. home affordability crisis, but affordability aftershocks are now being felt further inland as housing refugees migrate from the high-cost coastal markets to lower-priced markets in the middle of the country where good jobs are available,” Blomquist said in a statement.

“That in turn is pushing home prices above historically normal affordability limits in those middle-America markets.”

Methodology

The Attom Data Solutions U.S. Home Affordability Index analyzes median home prices derived from publicly recorded sales deed data collected by Attom Data Solutions and average wage data from the U.S. Bureau of Labor Statistics in 446 U.S. counties with a combined population of more than 221 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 percent down payment, including property taxes, home insurance and mortgage insurance. Average 30-year fixed interest rates from theFreddie Mac Primary Mortgage Market Survey were used to calculate the monthly house payments. Only counties with sufficient home price and wage data quarterly back to Q1 2005 were used in the analysis.

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