“How much of a house can I afford?” This is one of the most pressing questions many Americans are facing today. For the average-income American, the affordability of buying a house is currently lower than at any time in the past 17 years.
The housing market in the United States is undergoing significant changes, especially in terms of affordability. In over a third of the U.S. real estate market, the cost of buying a house accounts for 43% of the local average wage, far exceeding the 28% affordability standard.
A recent report from Attom company shows that due to continued shortages in housing supply, the median home price has skyrocketed to a record $360,000. The cost increases and mortgage rates hovering around 7% have outpaced income growth.
The company stated that in the second quarter of this year, the average housing costs, including mortgage payments, property insurance, and taxes, accounted for 35.1% of wages, the highest ratio since 2007, surpassing the previous year’s 32.1%.
Rob Barber, the CEO of Attom, in a statement to Bloomberg, expressed that the latest data “presents a significant challenge for homebuyers.”
“With the spring home buying season, buyer demand increases, these trends typically intensify,” he said. “However, this year’s trends are particularly challenging for homebuyers.”
According to Attom, in an analysis of 589 counties, 582 counties, or 98.8%, had lower affordability in the second quarter than their historical affordability average levels.
The affordability in high-priced markets in the West and Northeast has seen the largest declines, including Orange County and Alameda County in California, as well as Brooklyn and Nassau County in New York.
Answering the question “How much of a house can I afford?” is not easy as it is influenced by various factors, from economic and demographic changes to environmental issues and technological advancements.
Amid housing shortages and high mortgage rates, the rise of remote work due to the COVID-19 pandemic has also altered the dynamics of the housing market. With more people being able to work from places away from the office, the demand for housing in previously considered remote or unpopular areas has risen.
Changes in demographics are also significant. The millennial generation, currently the largest population group, is entering the prime home-buying age. Their preferences and economic conditions are reshaping the market. Many millennials prefer the convenience of urban and suburban living with amenities. They also carry more student loan debt than previous generations, affecting how much they can allocate to buying a home.
Looking ahead, affordability will continue to be a core issue, not only impacting individual home-buying choices but also influencing broader economic policies and community development strategies.
As housing prices continue to rise, the gap between people’s economic affordability and market prices is widening. With more people being priced out of the housing market, there is a growing interest in alternative housing solutions such as co-housing and tiny homes, offering more sustainable and economically viable living arrangements.