Inventory crunch throws shade on local housing affordability


Median-price homes were not affordable for average wage earners in 74% of the U.S. housing markets during the second quarter of this year.  Fortunately, that’s wasn’t the case in Sullivan and Washington counties. But that doesn’t mean the housing affordability crunch is not squeezing the local housing market and people who want to be homeowners.

The big housing headline of the week belongs to Attom Data Solution’s Q2 U.S. Home Affordability Report   But Attom isn’t the only one waving the red flag. Here’s what MarketPlace had to say a couple of days before Attom’s report was released. “The American housing market mirrors our society, the decision we make and the problems they leave with us. Inequity is widening as competition remains fierce for scant resources. Finding housing is getting harder for those of lesser means and maybe a tiny bit better for everyone else. And homeownership provides a bit of an economic edge – for those who can grab it.”

That was a reaction to Harvard’s Joint Center for Housing Studies 44-page annual report aka “The State of the Nation’s Housing.” According to Fast Company’s newsletter, that report affirmed:

  • Most people are spending more of their income on housing.
  • Low-income housing is disappearing.
  • Home ownership is out of reach for many.

But Attom offered the most current data on the topic in its Q2 report. “Despite falling mortgage rates and rising wages, the cost of owning the typical home remains out of reach or a significant financial stretch for the nation’s average wage earners,” according to Attom’s Chief Product Officer Todd Teta. “However, a closer look at the data reveals milder-than-usual increases for the Spring and none as severe as in previous years since the recession. Therefore, this can help indicate the market may be easing, following similar indicators from recent home-flipping and foreclosure data trends.”  A Tri-Cities localized version of the flipping story is “

There are two ways to frame the housing affordability story. One is the personal approach by interviewing the folks who would like to buy if they could find what they wanted, or could afford it. The second is to let the numbers speak for themselves. Sometimes, some media do both in long-form journalism.

Here’s the crux of what’s Attom’s report said about housing affordability in Sullivan and Washington counties. Those were the only two local counties with enough home sales to be included in the Q2 analysis. Remember that Attom’s report is based on a statistical analysis of market conditions, incomes and what homes sold for compared to historical affordability norms – not the inventory of homes currently for sale in the local markets. It’s a trusted and helpful tool.

SULLIVAN COUNTY

The Q2 affordability index shows housing is just under the county’s historic average.

The annual income needed to buy a median-priced home in Q2 was $30,748. That assumes the buyer had a 3% downpayment and a 28% front-end debt to income ratio.  That means it took 17.5% of percent of the buyer’s annualized wages to buy, up from the 17.4% historic percent of wages to buy. The mortgage payment for this statistical benchmark home was $717 a month.

The bottom line is the average Sullivan County wage earner with a 3% downpayment and good debt to income ratio met the economic qualification to buy a median-priced home.

WASHINGTON COUNTY

The affordability index shows housing was less affordable than it was during the first three months of the year, but 1 point under the county’s historic average.

The annual income needed to buy a median-priced home (with the same assumptions as those cited for Sullivan County) was $39,423. The monthly mortgage payment in Attom’s analysis was $920. The percentage of the wage to buy in Q2 was 26.1%, down from the 26.1% historic percentage to buy.

The bottom line is the average wage owner could afford a median-priced home in both Sullivan and Washington counties. The sticker is finding that median-priced home.

One thing Attom’s data points out without saying it is housing in Sullivan County is more affordable than it is in Washington County. But that’s another.

Here’s how the Census Bureau benchmarks some core facts about local housing in the 2017 American Community 1-year estimate. The 2018 report will be out later this year.

The median price home in Sullivan County was $142,800, up 20% since 2010. In Washington County, it was $162,500, up 6.8% since 2010.

Compare the Census benchmark to hard data from Realtor Property Resource and the Northeast Tennessee Association of Realtors last month. In May the median existing-home listing price in Sullivan County was $224,895 and $262,950 in Washington County. The median is the point where half of the prices are above, and half are below.

And when you peel back the next layer on the story and look at inventory, the housing market picture takes on a more complex context. Attom’s numbers show an average wage earner can afford a median-priced home if they can find it in the tightest inventory the region has ever seen – at least in modern time. In mid-June, there were 530 listings in the Johnson City region priced at $200,000 and below. In the 12 months ending in June homes in that price range accounted for 77% of the Johnson City area sales.

In the Kingsport region, there were 408 listings in the $200,000 and below price range and that price tier accounted for 76% of sales in the 12 months ending in June.

Now dial back the clock to 2010.

There were 1,376 listings for $200,000 or below in the Johnson City region, and that price range accounted for 90 of the existing home sales in the 12 months ending in June.

During the same period, there were 1,018 listings in the core price range in the Kingsport region, and they accounted for 92% of the existing home sales that year.

Homeowner vacancy rates are also part of the mix in the inventory/affordability crucible.

  • The most current number in Sullivan is 0.7% compared to 2.6% in 2010.
  • The most current in Washington Co. is 2.2% compared to 2.4% in 2010.

One more data point before we get out of the weeds.

Last year the number of new homes built in Sullivan Co. was down 42.6% from 2008 – the year before the Great Recession hit the local economy. In Washington Co. new home construction was down by 36.7%.

The not-so-subtle message in these numbers is availability is as much an issue as affordability in the local market. At the same time, it’s clear that not enough new homes have or are being built to sustain a healthy market. To further complicate matters, most of the new homes built have been in the more expensive price ranges where builder profits are higher. That began changing last year, but there is as much of a shortage of new homes in the affordable range as there are existing home for sale.

Here’s the methodology Attom uses for its affordability index: The index analyzes median home prices derived from publicly recorded sales deed data collected by Attom and average wage data from the U.S. Bureau of Labor Statistics. The affordability index is based on the percentage of average wages needed to make monthly house payments on a median-priced home with a 30-year fixed rate mortgage and a 3 percent down payment, including property taxes, home insurance, and mortgage insurance. Average 30-year fixed interest rates from the Freddie Mac Primary Mortgage Market Survey were used to calculate the monthly house payments.

The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes, and insurance — on a median-priced home, assuming a 3 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio. For instance, the nationwide median home price of $255,000 in the second quarter of 2019 would require an annual gross income of $69,366 for a buyer putting 3 percent down and not exceeding the recommended “front-end” debt-to-income ratio of 28 percent — meaning the buyer would not be spending more than 28 percent of his or her income on the house payment, including mortgage, property taxes, and insurance. That required income is higher than the $57,278 annual income earned by an average wage earner based on the most recent average weekly wage data available from the Bureau of Labor Statistics, making a median-priced home nationwide not affordable for an average wage earner.

 

 

 

 

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