Housing affordability is the talk of the town in the current real estate climate. Home prices surpassed their peak at the end of the last housing boom. Since 2012, prices have increased, on average, 6 percent per year. However, per capita incomes have risen only 2.4 percent, on average, per year, according to Freddie Mac’s latest Insight report for July.
In areas like Marin, San Francisco, and San Mateo counties, the median-income household is unable to qualify for a mortgage to purchase a median-priced home in any ZIP code within those three counties.
The limited number of homes for sale has increased the perception that homes are unaffordable, according to Freddie Mac’s report. But consumers may be surprised to find that homes are still more affordable than they may seem.
“Thanks to very low mortgage rates, monthly mortgage payments are affordable for the average household despite currently high house prices,” says Sean Becketti, Freddie Mac’s chief economist. “Nevertheless, hurdles to homeownership arise from the difficulty of finding a house. The supply of homes for sale is very tight, especially starter homes.”
Underwriting requirements are also more rigorous than they have been in the past, Becketti says.
“Many potential first-time borrowers are stymied by variable employment and income histories and the challenge of accumulating a down payment while simultaneously paying down their student loans,” Becketti says. “In fact, a high level of household debt, particularly student debt, poses perhaps the largest obstacle to first-time homebuyers.”