The current home affordability crisis has made becoming a homeowner increasingly out of reach for average earners in the United States, and it has hit its least affordable level in 17 years.
According to a recent report by ATTOM, the expenses associated with owning an average home, including mortgage payments, property insurance, and taxes, accounted for 35.1% of the average wage in the second quarter of this year. This represents a significant rise from the 32.1% recorded in the same period last year, and marks the highest level since 2007.
The report highlights the challenges faced by homebuyers in the current market, with rising prices and stagnant wages making it difficult to afford a home. Rob Barber, CEO of ATTOM, touches on the issue, stating:
“The latest affordability data presents a clear challenge for home buyers. While home prices are increasing and mortgage rates remain relatively high, these factors are making homes less affordable. It’s common for these trends to intensify during the Spring buying season when buyer demand increases. However, the trends this year are particularly challenging for house hunters, more so than at any point since the housing market boom began in 2012.”
When considering the data, it’s evident that the affordable housing crisis is preventing homeownership. Nonetheless, U.S. citizens are changing their game plan by choosing to rent instead of buy.
Income-to-Debt Ratio Preventing Homeownership
The report details that the latest numbers are unaffordable even by common lending standards often marked by a 28% debt-to-income ratio.
To explain further, ATTOM assessed housing affordability for average wage earners by estimating the income required to cover key homeownership costs for median-priced houses. This calculation was based on obtaining a loan for 80% of the home’s purchase price and adhering to a maximum front-end debt-to-income ratio of 28%. Based on this, ATTOM provided the following example:
Affording the nationwide median home price of $360,000 in the second quarter of 2024 required an annual wage of $90,598. That was based on a $72,000 down payment, a $288,000 loan and monthly expenses not exceeding the 28% barrier – meaning wage earners would not be spending more than 28% of their pay on mortgage payments, property taxes and insurance. That required income was more than the $72,358 average wage nationwide.
According to the most recent average weekly wage data available from the Bureau of Labor Statistics, using the numbers provided above, a median-priced home would be unaffordable for average workers nationwide.
Related Article: High Mortgage Rates Drive Up Demand for Rental Properties
Demand for Rentals Spikes as Home Affordability Crisis Continues
The data presents a clear picture that average income earners are unable to keep up with the pace of surging prices, closing the door to homeownership as they’re funneled into rentals. This has effectively pushed the demand for rental real estate through the roof, which presents a lucrative opportunity for investors. This shift has created an opening for investors to enter the market at a time marked by increased demand and high rental rates.
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- The Driving Factors Behind the Ability to Charge Higher Rental Rates
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In addition to this, property values have been rising and are expected to continue their upward trend. This means investing at this time would enable real estate investors to earn equity at a faster pace.
Take Advantage of the Current Housing Market by Securing a Cash Flowing Rental Property
Investors are encouraged to take advantage of the current market conditions by securing a new construction rental property before prices climb further. In doing so, you’ll lock in high rental rates and start building equity as prices escalate.
For those who are interested, Morris Invest provides high-quality, build-to-rent properties in locations that offer a booming economy, job diversity, low crime, high rental rates, and a high demand for rentals in general. We also place an experienced property manager and tenant for our clients, and take care of all the details that successfully put a cash flowing rental property in their portfolios.
Related Article: New Construction Build-to-Rent Properties are a Good Investment with a Skyrocketing Demand
Feel free to schedule a call with our team to discuss your investing goals. Or, for more details on who we are and what our investing programs can offer you, visit the Morris Invest & SDIRA Program Overview page. You’ll also want to dive into the following video, which specifically covers the housing crisis. It details how current homeowners are actually skipping meals and medical care to make their mortgage payments.
