The big talking point in real estate this year is housing affordability, thanks in part to an acute shortage of inventory available and rapidly rising home prices. Indeed, home prices have already surpassed the peak at the end of the last housing boom, with prices rising an average of six percent each year since 2012.
In that time per capita incomes have risen just 2.4 percent on average, and that’s leading to concerns that many are being priced out of the housing market, Freddie Mac said in its July Insight report.
The mortgage giant reported that in areas such as Marin, San Francisco and San Mateo counties, the median-income household is no longer able to qualify for a mortgage on a median-priced home in any ZIP code. This reality, combined with the limited number of homes for sale, has led to a widespread perception that homes are now unaffordable for the average consumer. But Freddie Mac disagrees.
“Thanks to very low mortgage rates, monthly mortgage payments are affordable for the average household despite currently high house prices,” said Sean Becketti, Freddie Mac’s chief economist. “Nevertheless, hurdles to homeownership arise from the difficulty of finding a house. The supply of homes for sale is very tight, especially starter homes.”
Consumers also have to contend with more rigorous underwriting requirements than they’ve had to deal with in the past, Becketti acknowledged. He also noted that higher levels of debt are making it more difficult for some people to secure financing for a home.
“Many potential first-time borrowers are stymied by variable employment and income histories and the challenge of accumulating a down payment while simultaneously paying down their student loans,” Becketti said. “In fact, a high level of household debt, particularly student debt, poses perhaps the largest obstacle to first-time homebuyers.”