Several recent studies on the cost of homeownership tell us this is a terrible time to buy a home.
Prices are record high, mortgages eat up more of our income than in the last decade. And life’s not so great for those who already own. They can’t afford to fix and maintain their homes.
Here is the awful news these studies are telling us…
Who can afford these prices?
Home prices are the least affordable they’ve been since 2008, during the housing market crash.
Home prices are going up faster than wages are in 64 percent of the local markets throughout the country, according to a study from ATTOM Data Solutions.
The typical home price is up 4.7 percent from last year, while wage growth is only up 3.3 percent. Yearly growth in average home prices outpaced wage growth in 275 of the 432 counties analyzed in its report. And 75 percent of local markets aren’t affordable for average wage earners.
More of our pay goes to the mortgage
Mortgages are becoming a burden to homebuyers, the highest they’ve been since the Great Recession, Zillow says. Mortgage payments haven’t eaten up so much of the average U.S. income since 2009. Homeowners used 17.5 percent of their income than, now they’re using 17.1 percent.
Throughout the housing market recovery, low mortgage rates helped sustain housing affordability, even as home values climbed to new peaks. But mortgage rates increased sharply to start the year, rising nearly 50 basis points in the first three months, and affordability is waning as a result.
“For the past few years, historically low mortgage rates provided the silver lining for buyers as prices rose higher and higher,” says Zillow economist Aaron Terrazas. “If you were able to come up with a down payment, the low rates kept monthly housing costs relatively affordable in most parts of the country. Now, though, as rates are on the rise and home values are climbing at their fastest pace in 12 years, that affordability edge is getting thinner.”
Giving Americans reason to feel skeptical of the housing market.
The cost of homeownership: approach with caution
Americans on average anticipate a housing crash similar to the Housing Crisis of 2008, says a study from online lender Laurel Road. And 20 percent expect it to happen in less than a year. But that’s not the only interesting conclusion the data shows.
Fifty-three percent of Americans who plan on buying a home are worried about affording a home right now. And 46 percent of millennials don’t believe they can afford a 20 percent down payment on a home, the amount most mortgage lenders recommend.
Millennials are the most likely generation to be concerned about rising mortgage interest rates…
- Millennials: 70 percent
- Gen Xers: 60 percent
- Baby boomers: 35 percent
… Their saving goals may be one reason millennials are having kids later in life than previous generations.
Birth rates are down where they should be up
The economy is good, which usually means birth rates are up. Not if home prices are high. A recent study from Zillow concludes that: “An extra 10 percentage-point rise in home values is associated with an extra 1.5 percentage-point drop in birth rates for 25-to-29-year-old women.”
Meaning, areas where home prices are rising fastest, birth rates are dropping. The connection raises the question if millennials can afford to buy homes and start families?
“There are many highly personal reasons beyond housing costs why some couples may delay having children,” Terrazas says. “The big question this research raises is whether millennials are simply delaying childbirth into their 30s, or are actually choosing to have fewer children – and so far, the data are mixed.”
Homeowners can’t afford to fix what they have
Three-fourths of homeowners have delayed home improvements because they can’t afford them, says a study from Discover. Forty-two percent had to put them off more than a year.
“The survey indicates that a significant majority delay home repairs and remodels because of limited savings,” says Discover VP Dan Matysik. “Unfortunately, these delays may cost homeowners more in the long run with additional repairs.”
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