Home affordability worsens despite home price declines

A new report from California-based Attom Data Solutions shows that affordable homes remain beyond the reach of many.

The company’s fourth-quarter 2022 U.S. Home Affordability Report found that the average household income in Benton County is $71,929, and the median home price is $313,108. Those are the highest figures among the eight Arkansas counties included in the report. So, the average wage earner in Benton County would need to spend 29% of their income to secure a mortgage on a median-priced home.

Nationally, an average of 32.3% of a person’s paycheck goes toward paying the mortgage and housing expenses, which is up from nearly 30% in the third quarter of 2022 and 23.8% in 2021.

Affordability has worsened due to rising mortgage rates in the U.S., which offset the benefits of rising wages and a recent decline in home values.

“Prospective homebuyers — especially first-time buyers — can’t seem to catch a break,” said Rick Sharga, executive vice president of market intelligence at Attom. “For the past two years, home prices have appreciated in double digits by 15 to 20% a year in some markets. Now that home prices have plateaued and even declined in some markets, buyers are faced with mortgage rates that have doubled, making home purchases even less affordable.”

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: 29% of wages needed to buy a home. Wages are up 3%, and median home prices are up 10% in the past year.
• Craighead County: 25.3% of wages needed to buy a home. Wages are up 7%, and median home prices are up 3% in the past year.
• Faulkner County: 31.6% of wages needed to buy a home. Wages are up 4%, and median home prices are up 15% in the past year.
• Garland County: 35.8% of wages needed to buy a home. Wages are up 4%, and median home prices are up 10% in the past year.
• Pulaski County: 20.2% of wages needed to buy a home. Wages are up 6%, and median home prices are down 2% in the past year.
• Saline County: 33.3% of wages needed to buy a home. Wages are up 8%, and median home prices are up 9% in the past year.
• Sebastian County: 21.2% of wages needed to buy a home. Wages are up 6%, and median home prices are up 3% in the past year.
• Washington County: 36% of wages needed to buy a home. Wages are up 9%, and median home prices are up 14% in the past year.

Sharga explained that interest rates have more than doubled in the past year to almost 7%, inflation remains near 40-year highs, and the stock market has declined. All those forces have helped drive down prices after a decade of gains. But affordability could shift back in favor of home seekers if mortgage rate hikes ease or if prices drop further.

“There is a scenario where affordability improves as we move through 2023,” Sharga said. “Wage growth continues to be strong; home prices appear to have stabilized and are even going down slightly; and mortgage rates may have peaked for this cycle and could go down gradually next year. If those conditions remain in place, the affordability picture is much brighter for a lot of potential buyers.”