Where is Housing Affordable?

The Mortgage Corner

Why aren’t there more home buyers? It seems that housing can’t really recover until household incomes recover, and household incomes are barely keeping up with inflation at the moment. We also know that can’t happen until we are closer to full employment. Right now housing prices are rising faster than incomes, which means an ever shrinking number of homebuyers are eligible purchasers, unless current strict lending standards are eased.

At least, that’s what one report suggests. In Trulia’s Price Monitor for June, Trulia’s chief economist Jed Kolko compares the rise in asking prices with the rise (or lack thereof) of wages in the 100 largest metro areas.

“In fact, average wages per worker rose less than 1 percent in 2013 in all but one of the 10 metros with the largest price increases,” Kolko said. “Nationally, asking prices (year-over-year in June 2014) rose faster than wages per worker (year-over- year in 2013) in 95 of the 100 largest metros.”


Graph: Housing Wire

The report might be slightly biased, as those areas with the highest price increases; such as Detroit, Riverside-San Bernardino, and Florida; were severely overbuilt with mostly low cost housing. But even Silicon Valley suburbs such as San Francisco had 20 percent annual price increases, while average incomes even there can’t keep up.  They rose as much as 5 percent Y-o-Y in the high cost areas.

And Fannie Mae and Freddie Mac conforming loans have been getting more expensive. They can add as much as 3 pts. to loan costs if a buyer’s credit score drops below 680. And many lenders have dropped their Fannie Mae maximum debt-to-income ratio to 43 percent, though Freddie Mac’s can as high as 50 percent with compensating factors, such as a good savings history.

The good news is that the unemployment rate has dropped to 6.1 percent, but when part timers and those no longer looking for work are included, it is still stuck at 12.1 percent, according to the US Census Bureau’s June unemployment report.

The best answer to slow down price increases is to build more housing, of course. We know existing-home inventories continue to increase, with inventory now higher than in 2013, which is also helping affordability.


Graph: Investors Daily

Though we may have to wait for more jobs, the jobs picture is looking better. The latest indicator is the Labor Department’s May JOLTS report, which says that employers are firing fewer workers and hiring more.

Job openings rose to a recovery high in May, the Labor Department said Tuesday in its Job Openings and Labor Turnover Survey (JOLTS) report. The 4.64 million U.S. job openings topped economists’ expectations for 4.4 million and hinted at improvement in the economy and job market.

So economic growth and employment are picking up, which means the gap between incomes and housing prices will probably decrease, allowing more homebuyers into the housing market this year.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen


About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Housing, housing market, Weekly Financial News and tagged , , , , . Bookmark the permalink.

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