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Affordability takes another hit with highest mortgage rate since 2008

This is an updated version of the second-quarter affordability index first published in late June.

The housing market reached an inflection point of sorts in early September. The weekly average rate for a 30-year-mortgage increased to 5.7 percent. Mortgage Daily News reported on the same day that home purchase costs of borrowing were above 6 percent. Local mortgage originators said many of the local home loans were being made at 6.5 percent. According to Attom Data Solutions, Tri-Cities home purchase loans declined by 25.1 percent from this time last year.

National Association of Realtors (NAR) Senior Economist and Director of Forecasting Nadia Evangelou said last week that data shows the typical family in the U.S. can no longer afford to buy a median-priced home when mortgage rates rise over 5.7 percent. At that rate, the typical family needs to spend more than 25 percent of their income on the mortgage payment. That’s minus the cost of mortgage insurance, home insurance, taxes, and maintenance. It’s also based on a U.S. median home price of $428,500. The closest any local market came to that in August was Piney Flats at $421,500. The median price in most local markets is quite a bit lower than the U.S. median. The August drill-down on city and community existing home sales and prices can be found on the NETAR website at https://netar.us/tri-cities-hot-housing-market-shows-some-cracks/

In late June, the affordability index for the Tri-Cities’ two major housing markets said affordability had dropped to record lows. Sullivan’s median home price payment is 50 percent higher than last year. It’s 3.5 percent higher in Washington Co, according to Attom Data Solutions. An updated version – the third-quarter report – will be available later this month.

The median existing-home sales price in the Tri-Cities region has increased 2.5 percent since June, and wages continue to lag home sale and rent price increases.

In the Q2 report, Washington Co. has the dubious distinction of having a housing market where the average working person can not qualify to buy a median-price home using conventional financing standards of a 20 percent down payment and a 28 percent front-end income-to-debt ratio. The typical buyer also must spend more than 30 percent of their income on housing. The Department of Housing and Urban Development defines 30 percent or less as the affordable housing benchmark. The suggested spending level for housing is 25 percent of an individual’s or family’s income.

Sullivan did not drop to the same status as its neighbor to the south due to higher wages and home prices that were slightly lower. But its affordability index has declined for the past 15 quarters.

Affording a local home has gotten significantly tougher in recent months. Local markets gained recovery status from the Great Recession in 2016 and began on their current rage in 2018. Since sales have absorbed the region’s existing-home stock faster than the market replenished it. At the same time, the region’s new home industry was still operating at less than half of its 2006 peak capacity. That picked up after the nation’s largest builder – D.R. Horton – moved into the area. It now dominates the volume of new home permits.

At the end of May, a little more than one of every 10 homes in the Tri-Cities region was in the affordability range. Another 53 percent were above it, and about 40 percent were priced below.

Higher prices and less inventory have also driven local rents to record highs.

Attom’s analysis found that single-family homes and condos are less affordable in 547 (97percent) of the 575 counties nationwide, with enough data to analyze.

“Extraordinarily low levels of homes for sale combined with strong demand have caused home prices to soar over the last few years,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “But homes remained affordable due to historically low mortgage rates and rising wages. With interest rates almost doubling, homebuyers are faced with monthly mortgage payments between 40 and 50 percent higher than they were a year ago – payments that many prospective buyers simply can’t afford.”

The report determined affordability for average wage earners by calculating the income needed to meet major monthly homeownership expenses — including mortgage, property taxes, and insurance — on a median-priced single-family home, assuming a 20 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics

Down payment trends worsen the local payment and affordability picture. Attom says the typical down payment for a median-priced home in the Johnson City metro area was 8.4 percent in the first quarter. It was 5.2 percent in Kingsport-Bristol. It had increased to 9 percent by the end of the end of Q2 in the Johnson City metro area and 5.5 percent in Kingsport-Bristol. Buyers who do not make a 20 percent or more down payment must buy private mortgage insurance (PMI). PMI costs typically range from 0.5 percent to 1 percent of the total loan. The cost varies, but you can add hundreds of dollars a month to the mortgage.

SULLIVAN CO.

During the second quarter, the typical mortgage payment for a median-priced home was $995, up 50 percent from last year. Buyers who did not make a 20 percent or more down payment were required to buy PMI, which increased their monthly payment.

The annualized weekly wages in Sullivan were $55,549, and the annual income needed to buy with a 20 percent down payment and a 28 percent front-end debt to income ratio was $42,634. So, the average working person could qualify to buy.

The percentage of income to buy was 21.5 percent.

WASHINGTON CO.

During the second quarter, the typical mortgage payment for a median-priced home was $1,222, up 35 percent from last year. The annualized weekly wages for county workers were $48,516, and the wage needed to qualify to buy was $52,379; thus, the average worker could not qualify to buy a median-priced home.

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