Home affordability could reach an all-time low by 2023

Report from Black Knight says wage growth can't keep up with rising home prices

EMBRACE. FOCUS. EXECUTE. Build your 2019 roadmap to success with 4,000+ real estate leaders.
Inman Connect New York | January 29 - February 1, 2019

Rising home prices are causing a sharp uptick in the monthly payments for new homeowners, but as rising wages fail to catch up, the current affordability boom may be unstable, a new report from financial data and analytic company Black Knight found.

“Stronger-than-average income growth in recent years still hasn’t been enough to keep up with rising home price appreciation (HPA) and interest rates,” said Ben Graboske, executive vice president of Black Knight’s Data & Analytics division. “Seven states are now less affordable than their long-term norms and another 12 are close to hitting that point.”

“Though much of the country remains more affordable than long-term norms, the current trajectory would change that sooner rather than later,” he said. “We’ve modeled out multiple economic scenarios, some more conservative than others, and even with historically strong income growth, the current combination of home price and interest rate increases isn’t sustainable.”

Black Knight reported faster monthly HPA than any year since 2005 in January and February. HPA growth slowed slightly in March, increasing 6.5 percent and interest rates have climbed three-quarters of a percent so far this year. Those two factors coupled together have led to a $150 increase in the monthly payment on a 30-year-mortgage used to purchase a home after a 20 percent down payment, a 14 percent rise from the beginning of the year.

Incomes have been growing at 4.37 percent annually in recent years — compared to a 2.75 percent 25-year-average — but that growth still hasn’t matched the current rising home prices. If growth continues at this current pace — with a half-percent increase in interest rates each year — affordability would reach an all-time low by 2023.

“Many analysts expect HPA to slow, and March’s slight downward shift in annual HPA may already suggest some degree of reaction to tightening affordability,” Graboske said.

In Washington, D.C., prospective homeowners need at least 40 percent of the area’s median income to purchase the median-priced home, which is the largest share in the country. California, Hawaii and Wyoming are close behind, all with above 30 percent payment to income ratios.

Despite the rise in loan costs, overall delinquency rate on home loans dropped 1.6 percent, month-over-month and 10.17 percent year-over-year to 3.67 percent. There were 49,300 foreclosure starts for April 2018 a drop of 5.37 percent from March.  

Email Patrick Kearns