Q4 Analysis Shows Homes Continue to Become Less Affordable

The year is up and as the first bits of data for the fourth quarter of 2021 begin to come in, new data shows that home affordability hit a new low last year in a majority of counties across the country due to surging real estate prices and stagnant wages. 

According to the quarterly U.S. Home Affordability Report from ATTOM, a California-based property information company, homes became less affordable in 440 of 575 counties analyzed in the report. To put that another way, homes were less affordable in 77% of the country than they were the previous quarter, up from 39% from the same period in 2020. 

It should be noted that the report, while comprehensive, does not cover all areas of the U.S.—It only includes counties with enough data to be statistically relevant. In order to determine affordability, the report calculated the amount of income needed to meet major monthly home ownership expenses— including mortgage, property taxes and insurance—on a median-priced single-family home, assuming a 20% down payment and a 28% maximum “front-end” debt-to-income ratio. The report also pegged the median home price at $317,500, a new high. 

While the average worker can still afford major homeownership costs during the fourth quarter, the percentage of counties where affordability is worse than historical averages has hit another record not seen since the third quarter of 2008. 

This pattern of costs remaining manageable yet becoming less affordable has resulted in the typical home consuming 25.2% of the average national wage of $65,546, which was determined by the Bureau of Labor Statistics. This number is up from the second and third quarters of 2021 when costs consumed 21.5% and 24.4% of annual earnings, respectively. 

Still, these numbers are well within the industry standard of 28% of income that lenders like to see during the application process. 

“The average wage earner can still afford the typical home across the United States, but the financial comfort zone continues shrinking as home prices keep soaring and mortgage rates tick upward,” said Todd Teta, Chief Product Officer with ATTOM. “Historically low rates and rising wages are still big reasons why workers can meet or come very close to standard lending benchmarks in a majority of counties we analyze. But the portion of wages required for major ownership expenses nationwide is getting closer to levels where banks become less likely to offer home loans. Amid very uncertain times, with the pandemic again threatening the economy, we will keep watching this key measure of housing market stability.” 

Home prices up at least 10 percent in two-thirds of country 

“Median single-family home prices in the fourth quarter of 2021 are up by at least 10 percent over the fourth quarter of 2020 in 368, or 64 percent, of the 575 counties included in the report. Data was analyzed for counties with a population of at least 100,000 and at least 50 single-family home and condo sales in the fourth quarter of 2021.” 

“Among the 43 counties with a population of at least 1 million, the biggest year-over-year gains in median prices during the fourth quarter of 2021 are in Middlesex County (outside Boston), Massachusetts (up 42%); Wake County (Raleigh), North Carolina (up 27 %); Maricopa County (Phoenix), Arizona (up 26%); Hillsborough County (Tampa), Florida (up 26%) and Clark County (Las Vegas), Nevada (up 23%).” 

Price gains outpace wage growth in nearly 80 percent of markets 

“Home-price appreciation is greater than weekly wage growth in the fourth quarter of 2021 in 447 of the 575 counties analyzed in the report, or 78%, with the largest including Harris County (Houston), Texas; Maricopa County (Phoenix), Arizona; San Diego County, California; Orange County, California (outside Los Angeles) and Miami-Dade County, Florida. 

Ownership costs still require less than 28 percent of average local wages in half the nation 

“Major ownership costs on median-priced homes in the fourth quarter of 2021 consume less than 28% of average local wages in 296 of the 575 counties analyzed in this report (51%), assuming a 20% down payment. That was about the same as in the third quarter of 2021 for the same group of counties, but down from about two-thirds in the fourth quarter of last year.” 

“Counties where the smallest portion of average local wages is required to afford the typical home are Schuylkill County, Pennsylvania (outside Allentown) (6.5% of annualized weekly wages needed to buy a home); Macon County (Decatur), Illinois (9.2%); Bibb County (Macon), Georgia (9.5%); Wayne County (Detroit), Michigan (10.6%) and Peoria County, Illinois (11.3%).” 

Just one in five counties require annual wage of more than $75,000 to afford typical home 

“Annual wages of more than $75,000 are needed to afford major costs on the median-priced home purchased during the fourth quarter of 2021 in just 114, or 20 percent, of the 575 markets in the report.”  

“The top 30 highest annual wages required to afford typical homes are all on the east or west coasts, led by New York County (Manhattan), New York ($274,679); San Mateo County (outside San Francisco), California ($252,589); San Francisco County, California ($251,054); Santa Clara County (San Jose), California ($229,301) and Marin County (outside San Francisco), California ($223,713). 

Homeownership less affordable than historic averages in three-quarters of counties 

“Among the 575 counties analyzed in the report, 440 (77 percent) are less affordable in the fourth quarter of 2021 than their historic affordability averages. That is about the same as in the third quarter of 2020, when 74% of the same group of counties were historically less affordable, but far higher than the 39% level in the fourth quarter of last year.” 

Click here to view the report in its entirety, including methodology and interactive maps.