Coronavirus pandemic fuels affordability crisis for homebuyers

Robin Azougi 1st R, a licensed real estate salesperson with Douglas Elliman Real Estate, talks with prospectiv

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Robin Azougi 1st R, a licensed real estate salesperson with Douglas Elliman Real Estate, talks with prospective buyers at a house for sale in Floral Park, Nassau County, New York, on Sept. 6, 2020.
Wang Ying | Xinhua News Agency | Getty Images

Fierce competition for a limited supply of homes for sale has caused a surge in prices. Now, potential buyers, some fleeing urban areas hit hard by the coronavirus pandemic, are facing a national affordability crisis.

The median prices of single-family homes and condos in the third quarter are less affordable than historical averages in 63% of U.S. counties, up from 54% a year ago, according to Attom Data Solutions, a property data-base.

It calculates affordability for average wage earners on the income needed to make monthly mortgage, property tax and insurance payments on a median-priced home with a 20% down payment. It also assumes homeowners will pay no more than 28% of their income on those payments.

Price appreciation is now outpacing wage appreciation in 90% of housing markets nationally.

A pandemic-induced run on housing began in earnest in May and has not let up. Home sales in August were running at the fastest pace since 2006, and prices were up over 11% annually, according to the National Association of Realtors.

"In a year when nothing is normal, owning a single-family home has become less affordable to average wage earners across the U.S., despite conditions that would seem to point the opposite way," said Todd Teta, chief product officer with Attom Data Solutions.

He points to rock-bottom mortgage rates, rising incomes despite high unemployment and a weaker economy. The latter would usually hurt, not help the housing market.

"But those same low mortgage rates, along with other factors, have led a lot of buyers into the market chasing a reduced supply of homes," he said. "The result is price hikes have raced past the impact of wages."

Of course all real estate is local, and some markets are more affordable than others. Of the largest counties analyzed, the least affordable included Los Angeles, Phoenix, San Diego and Miami.

More affordable counties include Chicago, Houston, Philadelphia, Cleveland and Tampa, Florida, even though home prices have seen the biggest gains in some of these cities. Home prices are rising faster than incomes there, but for now at least, homes are still affordable.

As homebuying becomes less affordable, buyers are getting by with a little help from friends and family. About 59% of millennial homebuyers are receiving help with their mortgage down payment according to a recent report from Lending Tree. Forty percent of homebuyers of all ages are getting help from either family, friends, employers or a down payment assistance program to obtain a mortgage for their home purchase.
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