New study puts home affordability crisis in perspective

by Paul Gatling ([email protected]) 1,240 views 

In the U.S., the percentage of average wages needed to buy a home is at its highest level since the housing market collapse in 2008. Still, a median-priced home remains within the financial means of most workers in Arkansas.

That’s according to California-based Attom Data Solutions, which tracks national housing and foreclosure data. The company recently published its first-quarter 2022 U.S. Home Affordability Report.

In Benton County, the average household income is $71,000, and the median home price is $285,000. Those are the highest figures among the eight Arkansas counties included in the report. So the average wage earner would need to spend 21.1% of their income to secure a mortgage on a median-priced home.

Nationwide, the ratio is 26.3%, the highest percentage of wage consumption required to own a new home since the third quarter of 2008. Common lending standards consider 28% the ceiling for affordability.

“Throughout the pandemic, a glut of buyers has flooded the market, chasing an historically limited supply of homes for sale,” the report said. “This high demand was due in part to mortgage rates hovering around 3%, and in part because of the flight of urban renters leaving congested virus-prone areas for the perceived safety of a house and yard and the space for growing work-at-home lifestyles.”

The report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly homeownership expenses — including mortgage, property taxes and insurance — on a median-priced single-family home. It assumes a 20% down payment and a 28% maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics.

Based on the data, here’s where rates stand around Arkansas, according to Attom:

  • Benton County: 21.1% of wages needed to buy a home. Wages are up 8.6%, and median home prices are up 21.2% in the past year.
  • Craighead County: 18.2% of wages needed to buy a home. Wages are up 7.7%, and median home prices are up 5% in the past year.
  • Faulkner County: 22.2% of wages needed to buy a home. Wages are up 4%, and median home prices are up 5% in the past year.
  • Garland County: 25.6% of wages needed to buy a home. Wages are up 4.5%, and median home prices are up 15.5% in the past year.
  • Pulaski County: 13.9% of wages needed to buy a home. Wages are up 6.8%, and median home prices are up 1.8% in the past year.
  • Saline County: 25% of wages needed to buy a home. Wages are up 5.7%, and median home prices are up 23.2% in the past year.
  • Sebastian County: 14.3% of wages needed to buy a home. Wages are up 7.6%, and median home prices are down 3.8% in the past year.
  • Washington County: 26.6% of wages needed to buy a home. Wages are up 6.1%, and median home prices are up 20% in the past year.

The report shows that 79% of the country is experiencing an affordability crisis, the highest proportion since 2008. The figure was 38% in the first quarter of 2021. According to Attom, 79% is the highest level since mid-2008, when the housing bubble burst.

“It’s certainly no surprise that affordability is more challenging today for prospective homebuyers than a year ago,” said Rick Sharga, Attom’s executive vice president of market intelligence. “Historically low mortgage rates and higher wages helped offset rising home prices over the past few years, but as home prices continue to soar and interest rates approach 5% on a 30-year fixed-rate loan, more consumers are going to struggle to find a property they can comfortably afford.”

Sharga also noted that “rising food and energy prices could be a hidden factor that makes affordability even more of a challenge for homebuyers and makes it more difficult to make ends meet for current homeowners.”