The surge in home prices continues to outpace wage growth, making housing increasingly unaffordable for many Americans. In August, the median prices of single-family homes and condos reached unprecedented levels in 99% of U.S. counties, according to real-estate data company Attom.
In the third quarter of 2023, annual home-price appreciation surpassed wage increases in 47% of the 578 counties analyzed by Attom. This represents a significant shift from the previous quarter when wages were rising faster than house prices in most of those same counties.
Adding to the housing market’s affordability challenge is the 30-year mortgage rate, which is inching closer to 8%. As of October 3rd, mortgage rates hover at 7.72%, as reported by Mortgage News Daily. Consequently, this places further stress on potential homebuyers.
The CEO of Attom, Rob Barber, expressed concern about the unfavorable dynamics impacting the U.S. housing market. He believes these factors could significantly impact home prices, ultimately working against everyday Americans.
Attom estimated that the typical monthly payment for a home is now $2,053, taking into account the mortgage, homeowners’ insurance, mortgage insurance, and property taxes. This represents approximately 35% of an individual’s average annual national wage of $71,214. Such a share has not been observed since 2007, signaling potential implications for demand and upward pressure on prices.
As the 2023 buying season approaches its peak, Barber noted that some potential buyers may be priced out of the market. This would diminish demand and potentially alleviate the strain on prices.
Unfortunately, this scenario is already unfolding among younger generations. A survey conducted by real-estate brokerage Redfin revealed that 18% of millennials and 12% of Generation Z believe they will never be able to own a home.
More would-be homeowners are priced out
Rising home prices outpace wage growth in many regions
To put those figures in context: U.S. home prices rose by 3.7% in August, compared to the previous year, according to a report released Tuesday by CoreLogic. The median sales price of a single-family home was $375,000 in August. Real average hourly earnings for all private, nonfarm employees rose 0.5% year-over-year in August, the Bureau of Labor Statistics said.
Disparity in house and wage growth across regions
But there was a wide disparity in house and wage growth across regions. The most populous counties where annual home-price growth was outpacing wages include:
- Cook County, which includes Chicago
- San Diego County
- Orange County, which is near Los Angeles
- Miami-Dade County
- King County, which includes Seattle
Affordability based on wage data
Attom calculates housing affordability based on wage data from the Bureau of Labor Statistics as well as homeownership expenses, including mortgage payments, property taxes, and insurance premiums, for a median-priced single-family home. They also assume the buyer is putting down 20% and a 28% maximum debt-to-income ratio.
Declining affordability trend
“Housing market affordability is not helped by the 30-year mortgage rate edging closer to 8%. Rates are hovering at 7.72% as of Oct. 3.”
The company said that the data signals a broader trend of declining affordability, as it showed “a two-year pattern of home ownership getting more and more difficult for average U.S. wage earners.”
Wage growth outstrips home prices in some markets
Some markets have actually seen wage growth outstrip home prices, including in:
- Los Angeles County
- Harris County, which includes Houston
- Maricopa County, which includes Phoenix
The annual salary required to buy a median-priced home was the lowest in Schuylkill County, Penn., which is located outside of Allentown, according to Attom.
High salaries needed in expensive markets
But in some expensive real estate markets, aspiring homeowners need to aim far higher. For example, a prospective buyer in Manhattan will have to make $407,125 a year to afford a typical home, according to Attom. That’s followed by:
- Santa Clara County ($357,889)
- San Mateo County ($356,519)