Rising home prices and mortgage rates have made homeownership unaffordable across much of the United States. Indeed, home prices have jumped 20% over the past year, and mortgage rates have risen from around 3% to about 6% this year, with some pros saying they will go higher (see the lowest mortgage rates here you may qualify for here). And now, the vast majority of counties in America are less affordable than they’ve been in the past, though there are some major exceptions.
Indeed, median home prices in 560 of the 575 counties analyzed in the Q2 2022 US Home Affordability Report conducted by real estate data company ATTOM are now less affordable compared to averages starting in 2005. The report determined affordability by calculating the amount of income a person living in the area needed to meet major monthly home ownership expenses like mortgage, property taxes and insurance on a median-priced single-family home, assuming a 20% down payment and a 28% maximum debt-to-income (DTI) ratio. (To calculate your DTI, add up your monthly expenses including mortgage payments and insurance, and divide the total by your gross monthly income, the result of which will be in the form of a percentage which reflects your DTI.)
“Very few local markets have been able to escape the dramatic home price increases of the past few years. When prices rise and compensation fails to keep up, things become less affordable,” says Elizabeth Renter, data analyst at NerdWallet. So just where are these places that people can supposedly afford to live?
10 counties that are now more affordable than in the past
|County, State||% of annualized wages needed to buy a home|
|St. Louis, Missouri||21.4|
Jeff Ostrowski, Bankrate.com analyst, says affordability is mostly a function of supply and demand and the most affordable counties are often in Rust Belt localities that have low levels of population and job growth, and therefore relatively little new demand for housing.
Still, it’s important to remember that these counties are the exception to the rule. In general, housing affordability is worse in most counties: “Affordability is a nationwide problem for a variety of reasons,” says Ostrowski. Reasons include an inventory shortage, rising mortgage rates and more, he adds. And “property prices have been soaring just about everywhere and home values have outpaced wage growth during the past two years,” says Ostrowski. Some of the most unaffordable large counties include Los Angeles County, California; Maricopa County, Arizona; San Diego County, California; Orange County, California; and Kings County, New York.
That said, “worsening affordability appears to be having an impact on demand, which could lead to prices plateauing or even correcting modestly in some markets. Many potential buyers may elect to continue renting until market conditions improve. Others might adjust their sights and look for smaller properties or homes that are further away from major metro areas,” says Rick Sharga, executive vice president of marketing at ATTOM.