Leaping home prices were accompanied by slightly higher mortgage rates in the second quarter of 2021. The combination was enough to lift the salary needed to purchase a median-priced existing home by more than 15%, with increases ranging from under 4% to over 30%.
Aug 23, 2021 - HSH.com, a trusted online resource for mortgage data, content and expertise released today its updated analysis of the salary required to afford a median-priced home in the top 50 metropolitan areas. The report uses the latest quarterly home price data from the National Association of Realtors (NAR), incorporates local property tax and homeowner’s insurance costs, and calculates the income needed to qualify for a median-priced home in each market.
In the second quarter of 2021, the updated research and calculations show that a combination of leaping home prices and firming mortgage rates are further challenging potential homebuyers. All top 50 metro areas reported home price increases ranging from about 8 percent to more than 45 percent, and higher monthly payments and greater cash needed to cover a down payment may be starting to push some folks to the sidelines as they tire of chasing moving goalposts.
Significant annual increases are noteworthy enough, but even quarter-to-quarter lifts in median prices are sharp, too. Thirty-one of 50 markets sported double digit increases from the first quarter of 2021, and the remainder posted high single digit gains. Over the last couple of years, strong home price gains were rendered manageable by ever-lower mortgage rates; for the most part, they stopped declining a couple of quarters ago and have begun to move away from record lows this year.
The most and least affordable metro areas in the salary analysis (assuming a 20% downpayment):
|
Most affordable metropolitan areas |
Required salary per year to afford a median-priced home |
|
1. Pittsburgh |
$38,274.67 |
|
2. Oklahoma City |
$41,739.94 |
|
3. Cleveland |
$44,089.81 |
|
Least affordable metropolitan areas |
Required salary per year to afford a median-priced home |
|
1. San Jose |
$286,702.93 |
|
2. San Francisco |
$237,665.45 |
|
3. San Diego |
$147,434.44 |
Salary calculations using a 10% downpayment and including PMI are also provided for each area.
Main takeaways from the updated research:
- The second quarter of 2021 was much like the first but more so, with even faster rising prices and another meaningful rise in mortgage rates. Rates were still 0.25% lower than they were in the same quarter a year ago, but have come up by the same amount over the last two quarters.
- Home prices continued their meteoric rise. Across the 50 major metros we track, the median year-over-year increase in the price of homes sold was almost 21%%, with the highest gain of the top metros an eye-popping 45% in the Austin-Round Rock (TX) housing market. There were twenty-five other metros with 20%+ annual increases (and many closer to 30% than 20%) and one that was over 30%, too. Just one metro posted a single-digit gain, and that was nearly 8 percent.
- Home affordability is fading. Income requirements are rising so quickly there is little likelihood that incomes are keeping pace. Wages may be on the rise due to tight labor markets, but the salary needed to purchase the median-priced home was 15.4% higher on a national basis, with a range of about 4% on the low end to more than 30% at the top. It's not likely that incomes can or will keep up, and that will eventually mean slower home sales or prices that come more into alignment with incomes.
- Mortgage rates have been firming over the last two quarters, so there is no more offset to rising home prices. Despite then-firming prices, falling mortgage rates saw the salary needed to purchase a home actually decline for the 2Q19-2Q20 period, but that favorable trend began to reversed last year, and has now accelerated. Rates remain favorable but there is little reason to expect them to return to or surpass record lows set at the turn of 2021.
- Sharply rising home prices make saving for a downpayment and closing costs even more challenging. Leaping home prices compound the issue of saving for a downpayment. The 20% we use in our base calculations (or even 10% with PMI, found on each metro-area panel) are increasingly unattainable, even for diligent savers. A 20% downpayment for a median-priced home (national) in the second quarter last year would have amounted to $58,220; one year later, and it'll take $71,580 to hit that goal, so a wanna-be homebyer would have had to accumulate another $1,113 per month -- $259 per week -- just to keep up.
- There remains little available to buy. At the current rate of sale, the National Association of Realtors estimates that there were about 2.5 months of supply on average in the second quarter. That's better than the ultra-thin 2.0 months in the first quarter, but well below the closer-to-six-months deemed optimal. While inventory levels will likely continue to improve slowly, it probably won't happen quickly enough as to temper robust price gains anytime soon.
We discuss all these items and more in greater detail in the “Key Takeaways” component of the report.
With affordability on the wane, potential homebuyers of more modest means looking to buy homes may struggle to come up with a down payment and closing costs, especially in heated markets. Help making the jump to homeownership is often available but is tricky to find if you don't know where to look. To help potential homebuyers, HSH offers its database of Homebuyer Assistance Programs by state, where information about these valuable programs, vital website addresses, contact info and more can be found.
Find the lists here for the 25 most expensive and 25 least expensive metropolitan areas with display maps for each list.
Since 1979, HSH.com has been a trusted mortgage resource for consumers seeking independent, objective and expert-level information, forecasts and data. HSH.com offers unique analysis, calculators, tools and content to help demystify first mortgages, home equity loans and lines of credit, reverse mortgages and more. HSH.com empowers homebuyers and homeowners to fully understand their home financing choices and provide opportunities for them to engage with partners to execute their transactions. Keith Gumbinger, mortgage expert and vice president of HSH.com, is available for interviews at your request.