Home ownership less affordable for middle-income Americans

Mitchell Hartman Feb 19, 2014
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Home ownership less affordable for middle-income Americans

Mitchell Hartman Feb 19, 2014
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Home ownership is getting less affordable—at least for middle-income would-be homebuyers.

RealtyTrac reports this morning that the typical monthly house payment in 325 residential markets across the U.S. rose 21 percent between Q4 2012 and Q4 2013. That’s based on median home prices that rose 10 percent, and mortgage rates that rose more than 33 percent year-over-year.

For the typical 3-bedroom home purchased at the end of last year, the monthly cost of mortgage payments, insurance, maintenance, and taxes (taking into account the cost of property taxes, minus the potential tax savings from use of the mortgage-interest deduction) was $865-per-month. That compares with $714-per-month one year earlier.

RealtyTrac vice president Daren Blomquist points to rising mortgage rates and rising home prices as the primary drivers of declining home affordability. And he says in part what’s driving home prices higher is investors buying up distressed properties, and any other properties they can get their hands on, with cash.

“Firms that are backed by hedge funds and private equity are buying single-family homes as rentals—in bulk,” says Blomquist. “Basically, they’re buying hundreds and thousands of these.”

Investors buying with cash don’t care so much about the monthly payment. But middle-class people who need to qualify for a 30-year fixed-rate mortgage do. Incomes aren’t going up—but the cost of homeownership is. In some of the hottest big-city markets, especially in California, the cost of homeownership rose by more than 30 percent last year.

“There is potential, if we continue on the trajectory we saw in 2013, for the bread-and-butter buyers in this market to be priced out very quickly,” says Blomquist.

The problem is—rents are high in many markets, so that’s not a great option for middle-income people, either.

RealtyTrac finds that the average minimum household income needed to qualify to buy a median-priced home nationwide at the end of 2013 was $41,544 (this is based on a monthly house payment eating up no more than 25 percent of household income). That’s still pretty affordable, based on Americans’ median earnings, says Blomquist. But the figure is up from just $34,262 in 2012. And in several markets—including San Mateo County, California, Hudson County, New Jersey, and Arlington County, Virginia—the minimum annual income required was over $140,000.

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