Housing Affordability Is Not All About Housing Prices!! Then, What Is It About?

November 6th, 2021 by Administrator

We have already discussed how house prices impact housing affordability. There, we talked about the complexity of housing affordability that extends beyond whether housing prices in the Los Angeles market are rising or declining. We also shared what market forces allow buyers to afford houses at higher prices. Today, we will walk you through another aspect of housing affordability. If you are a homebuyer, home seller, builder, realtor, or industry leader, this information can help you better understand the dynamics of housing affordability in any area.

Trends of Lower-Priced and Higher-Priced Residential Real Estate Markets

Especially since the last year, homebuyers and families are moving between the higher-priced markets and lower-priced markets with the knowledge that lower-priced markets are more affordable. Most often, this conclusion is made based on their increased purchasing power and their ability to maintain that current income because of remote working. This type of demand is referred to as transitory demand.

However, transitory demand doesn’t form a basis for a long-term sustained housing market. The main factor that makes a housing market sustainable in the long term is that when an average person can afford an average home in the area.

In the past few years, people were able to afford more because of the falling mortgage rates that offset the increase in house prices. At present, mortgage rates are increasing, which means buyers have to qualify for and agree to pay much higher mortgage payments.

The national median prices of single-family homes increased by 22.9 percent within the last year, and monthly mortgage payments surged up to $1,215 – an increase of $196 compared to this time last year.

When most people think about housing affordability, they often assume that a house tagged with higher prices is expensive and a lower-priced house is cheaper. However, this is not the case. Let’s understand how.

Why Housing Affordability Is Not Just About Prices?

As mentioned above, housing affordability in a market is determined by both average home price and average income. If we talk about at the national level, the average home cost is around $357,900 and the average income is $56,310.

To evaluate the housing affordability in a particular city is to divide the average home price by the average income. It will give you a ratio that shows how much annual income a homebuyer needs to purchase a home in that area.

In order to get a clear picture, you need to see more than just the surface.  

Housing Affordability in LA, CA:

Housing Affordability in Bend, Ore:

A quick look at this data reflects that, despite lower home prices than that of Los Angeles, Bend is even no longer affordable for its residents when it comes to purchasing a home. On the other hand, even after an increase in home prices in LA, its residential market is more affordable for its residents. So, it is clear that affordability is not just home prices. Instead, it is the result of the combined impact of both home prices and income.