Housing Affordability: There Is No Crisis

Housing Affordability: There Is No Crisis

Image of a house, real estate lawyerWhile a housing affordability crisis has taken the blame for holding back home sales in the United States, homes in America are more affordable than ever despite increased prices and rising interest rates. New data provided by First American Financial Corp. suggests that today’s home buyers are actually experiencing a much more affordable housing market than their parents did four decades ago. Historically low mortgage interest rates and consistent income growth have provided Americans with more home buying power.

Housing Affordability Over the Years

In the past, particularly between 1985 and 2000, a home buyer was expected to spend about 21 percent of his or her total income on monthly mortgage payments. On average, people who earn close to the median annual income in America today should expect to spend about 15 percent of their monthly earnings on mortgage payments.

Median income households in 1980 could only afford to spend about three-quarters of the median housing cost. In 2016, they could afford to purchase a home with a price tag of about 1.5 times the median home price.

The incredibly low mortgage rates of today pale in comparison to those of the past few decades. In 1981 mortgage rates soared to around 16.6 percent. By 2016, they had dropped to below 4 percent. Although mortgage rates have risen in the past few months, they are still nowhere near the peak they reached in the 1980s.

Places that Received the Highest Increase in Affordability

Between 1990 and 2016, approximately 22 of the nation’s largest metro areas that were unaffordable became affordable. During that same time period, out of 100 of the biggest metro areas in the United States, only Miami became unaffordable.

While the overall housing affordability rate has increased, there are some places that experienced more significant growth than others. Metros with the most affordability include Allentown, Pennsylvania; Rochester and Albany, New York; New Have and Hartford, Connecticut; Chicago, Illinois; and Worcester, Maine.

Positive trends regarding housing affordability are expected to continue into the foreseeable future. Trump’s plan to make American housing great again has helped keep the typical American home at an attainable range. With that said, mortgage rates will have to increase by 2.5 times over the initial rate for the country to experience a housing crisis.

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