Housing affordability is down nationwide from a year ago and fewer households can afford the inventory of homes currently for sale based on their income, according to a joint study by the National Association of Realtors and realtor.com, NAR's online real estate website.
NAR's Realtors Affordability Distribution Curve and Score, which examines affordability conditions at different income levels for all active inventory on the market, used data on mortgages, state and metro area-level income and listings on realtor.com to determine an area's Affordability Score. A score of one or higher generally suggests a market where homes for sale are more affordable to households in proportion to their income.
Data in March found the states with the lowest Affordability Score were Hawaii (0.52), California (0.57), Oregon (0.60), and the District of Columbia, Montana and Rhode Island (all at 0.64). In these areas, median income level households can afford only 19 to 23 percent of the active housing inventory. States with the highest Affordability Score were Ohio (1.12), Indiana (1.09), Kansas (1.09), Iowa (1.07), and West Virginia (1.05, where a typical household can afford 54 to 62 percent of the housing inventory currently on the market.
Not surprising, California metro areas dominated the list with the lowest affordability scores, led by Los Angeles-Long Beach (0.35), San Diego-Carlsbad (0.37), San Jose-Sunnyvale (0.43), Oxnard-Thousand Oaks-Ventura (0.45) and San Francisco-Oakland (0.48), where a typical household can only afford 3 to 11 percent of the current housing inventory.
The Youngstown-Warren, Ohio-Pennsylvania market had the highest Affordability Score at 1.25, followed by Dayton, Ohio (1.19), Toledo, Ohio (1.18), Akron, Ohio (1.16), and Scranton-Wilkes-Barre, Pennsylvania (1.11). In these areas, the typical household can afford nearly 75 percent of the homes that are on the market.
NAR chief economist Lawrence Yun pointed to a notable imbalance between what potential home buyers can afford and what is listed for sale. It explains why first-time buyers continue to struggle finding affordable homes to buy. First-time buyers account for less than a third of home sales so far this year.
"The survey confirms that the lack of entry-level supply is putting affordability pressures on too many buyers - especially those at the lower end of the market, where demand is the strongest," said Yun.
"In Silicon Valley, where we have a scarcity of land, land in itself has been valuable. Now, with a burgeoning economy and more jobs than there are housing units, the dynamics of supply and demand come into play and it's been tough for first-time homebuyers," said Bill Moody, president of the Silicon Valley Association of Realtors.
The Affordability Score fell nationally from 0.86 to 0.84 between March 2017 and March 2018, because of rising prices across the country and a spike in mortgage rates, yet 14 states had better affordability compared to a year earlier. The District of Columbia led with a score of 0.59 rising to 0.64, followed by Vermont (0.81 to 0.84), Hawaii (0.50 to 0.52) and North Dakota (0.95 to 0.97).
Thirty-five metro areas had better affordability compared to a year earlier, led by Austin-Round Rock, Texas (from 0.55 to 0.66), Syracuse, New York (1.04 to 1.1), North Port-Sarasota, Florida (0.60 to 0.66) and Palm Bay-Melbourne, Florida (0.71 to 0.77).
"Wages are growing, which is welcome news for prospective buyers, but prices are increasing at a faster rate, up almost 6 percent in the first two months of 2018. Solutions to improve these conditions include more homeowners selling, investors releasing their portfolio of single-family homes back onto the market and more single-family housing construction," said Yun.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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