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Keeping an Eye on Affordability

Prices may be strong in many markets, but according to the recent The Housing and Mortgage Market Review published by Arch MI, affordability may become more of a problem.

“A tight job market, interest rates that are still low and an overall shortage of housing are pushing up home prices faster than incomes,” said Dr. Ralph G. DeFranco, Global Chief Economist, Mortgage Services of Arch Capital Services Inc. “That’s good news for those who already own, but bad news for those looking to buy. I expect prices and rates to rise, meaning affordability will only worsen from here. In fact, once mortgage interest rates reach 5 percent, homeownership in high-cost areas like California could be out of reach for many people who qualify now.”

In California in particular, home prices are outpacing incomes. Seven of the nation’s 10 least affordable cities are in California, and San Francisco has the highest housing costs relative to income in the country. Arch MI median Debt to Income scale (DTI) in San Francisco is 61 percent. By contrast, the most affordable city in the country, Detroit, has a DTI of 13 percent.

What may come as a surprise to some is the rising affordability of housing in New York City., with the median DTI seeing a drop of 8 percent between 2015 and 2017. However, New York is still is still more expensive than all but nine American metro areas.

At the state level, the Arch MI Risk Index model, revealed that Alaska, North Dakota, and Wyoming have been plagued by weak employment and home sales, putting them at risk for declines in home price declines. According to Arch MI, declining oil and mining industries have been left these states in recessions, Other states at risk for home price declines include Louisiana, New Mexico, Oklahoma, and West Virginia.


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