House prices are outpacing wage gains, adding to U.S. homebuyers’ woes

U.S. home prices are rising, but wages are not keeping up.

Home prices rose in August as low inventory pushed up prices. Median-priced single-family homes and condos are becoming unaffordable compared to historical averages in 99% of the counties in the U.S., according to a recent analysis by real-estate data company Attom.

Annual home-price appreciation outpaced wage increases in the third quarter of 2023 in 47% of the 578 counties analyzed by Attom. That marked a “significant change” from the second quarter of 2023 when wages were growing faster than house prices in most of those same counties, the researchers said. 

Housing market affordability is not helped by the 30-year mortgage rate edging closer to 8%. Mortgage rates are hovering at 7.72% as of Oct. 3 according to the latest data from Mortgage News Daily, putting further pressure on homebuyer affordability.

‘The dynamics influencing the U.S. housing market appear to continuously work against everyday Americans.’

— Rob Barber, CEO of Attom

“The dynamics influencing the U.S. housing market appear to continuously work against everyday Americans, potentially to the point where they could start to have a significant impact on home prices,” Rob Barber, CEO for ATTOM, said. 

The typical monthly payment for a home was $2,053, Attom estimated, including the mortgage, homeowners’ insurance, mortgage insurance, and property taxes. That’s about 35% of a person earning an average annual national wage of $71,214. That share is at the highest level since 2007, Attom said. 

“With basic homeownership now soaking up more than a third of average pay, the stage is set for some potential buyers to be priced out, which would reduce demand and the upward pressure on prices,” Barber added. “We will see how this shakes out as the peak 2023 buying season winds down.”

That is, in fact, already happening. Some 18% of millennials and 12% of Generation Z said they believe they will never be able to own a home, according to a survey released by real-estate brokerage Redfin in early September.

More would-be homeowners are priced out

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. 

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, and King County, which includes Seattle.

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. 

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.” 

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, Attom said.

But in some expensive real-estate markets, aspiring homeowners need to aim far higher: A prospective buyer in Manhattan, for example, will have to make $407,125 a year to afford a typical home, Attom said. That’s followed by Santa Clara County ($357,889) and San Mateo County ($356,519).

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