Read the Beforeitsnews.com story here. Advertise at Before It's News here.
Profile image
By John Rolls (Reporter)
Contributor profile | More stories
Story Views
Now:
Last hour:
Last 24 hours:
Total:

American Dream Re-Collapses: US Housing Least Affordable In A Decade

% of readers think this story is Fact. Add your two cents.


Authored by Mike Shedlock via MishTalk, ZeroHedge

It takes 23.6% of median income to make the monthly payment on the average-priced home.

In it’s latest report, the Black Knight Mortgage Monitor confuses affordability with payment stress and fails to make an apples-to-apples comparison when determining homes are “more affordable” today than in the period 1995-2003.

Nonetheless, the report is interesting for what it does show. I am passing on a number of suggestions to them as to how to make the report better.

  • It now takes 23.6% of median income to make the monthly payment on the average-priced home, making housing the least affordable it’s been in nearly a decade.

  • The monthly principal and interest payment needed to purchase the average-priced home has seen a $190 per month increase since the beginning of 2018, an 18% jump.

  • Despite the recent tightening, housing on average across the U.S. remains more affordable than the long term benchmark (1995–2003) of 25.1%.

  • Even if home prices were to stay flat, another 0.50% increase in interest rates would make homes less affordable than long term norms.

California Least Affordable

  • California is the least affordable state in which to live, requiring 39% of the median income in the state to purchase the average-priced home.

  • Even more noteworthy is the increasing delta between affordability today and California’s own long-term averages.

  • It currently requires 7.5% more of the median income to purchase the average-priced California home today (39.3% vs. 31.8%) that it did from 1995-2003.

  • While that payment-to-income ratio is still far more affordable than the 59% peak in 2006, symptoms of California’s tight affordability environment appear to be emerging.

Affordability Today vs Historical Average

  • 7 of the 10 states that are now less affordable than long-term averages have seen their rate of home price growth slow over the past six months.

  • At the start of 2018, just two states – California and Hawaii – were less affordable than their long-term norms.

  • As of today, 10 states have passed those benchmarks and another six are within 1.0% of long-term affordability levels.

  • Hawaii is the least affordable state compared to long-term norms, requiring nearly 8% more of median income to make the payment on the average home than long-term averages.

Interesting but Flawed

The stats are interesting but there are a number of fundamental flaws in the reporting.

Median income and payments should be compared to median home prices, preferably by metro-area, but minimally by state.

A few charts will highlight the issues.

Real Median Income vs Sales Price Nationally

Real Median Income in California vs Sales Price in Western Region

​I do not have payment data but the decline in interest rates will not offset the rise in home prices.

My charts are flawed as well. I used new home prices even though existing home prices would be a better fit because Fred history on existing sales only dates to September of 2017.

Let’s try one more thing.

Real Median Income vs Case-Shiller 20-City Index

Understanding Affordability

To understand where affordability really is, Black Knight needs to look at real median household income vs home prices of repeat sales of the same house.

Real median household income has been flat. Home prices sure haven’t been.

It’s the net of rising real incomes vs price (not payment) on the same housethat determines whether or not homes are more affordable.

Using nominal wages to calculate “affordability” is a mistake. The CPI is hugely understated because it does not include home prices.

Those in school or paying for their own medical insurance would also dispute the CPI.

And what about rising property taxes?

Affordability vs Payment Stress

Consider a person who bought a house 20 years ago with a 30-year mortgage and refinanced lower three times without pulling any cash out.

Such a house is not more affordable today in any realistic sense even though payments by the original homeowner are less.

That person has more money to spend (and less mortgage payment stress), not because incomes are up, but because their payment fell (assuming property taxes did not rise too rapidly).

Similarly, a person in a variable rate mortgage in a rising rate environment has more payment stress while there is less payment stress in a falling rate environment.

In this sense, Black Knight also confuses affordability with decreasing mortgage stress on existing homeowners.

Addendum

Real Estate Decoded provided an Inflation-Adjusted – Case-Shiller Home Price Index

Compare the following charts to the Black Knight statement: “Despite the recent tightening, housing on average across the U.S. remains more affordable than the long term benchmark (1995–2003) of 25.1%.

Inflation Adjusted Case Shiller USA

Inflation Adjusted Case Shiller 20 Cities + USA

Click on either chart to expand.

Real median household incomes have been stagnant. Real home prices haven’t.

Lower mortgage payments of existing homeowners do not make homes more affordable.

The Fed blew another housing bubble. Once again, the size of the bubble varies city to city.

I would be very interested in another take on this by Black Knight along the lines suggested above.

https://www.zerohedge.com/news/2018-11-06/american-dream-re-collapses-us-housing-least-affordable-decade

Read more great articles here: https://www.zerohedge.com



Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!


Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST


Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)

Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen!

Nascent Iodine - Promotes detoxification, mental focus and thyroid health.

Smart Meter Cover -  Reduces Smart Meter radiation by 96%! (See Video).

Report abuse

    Comments

    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    MOST RECENT
    Load more ...

    SignUp

    Login

    Newsletter

    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.