Housing affordability is alarming

alarming housing affordability

Federal Housing Finance Agency (FHFA) reveals a new housing affordability metric.  This new metric builds upon the data already provided by other similar metrics. What does it show?  Well, the data tell something that is not pleasing at all.  How does housing affordability affect you?

Income and Housing Affordability

The researchers found that median-income households can afford 62% of the nation’s housing stock while low-income households and very-low-income households can only afford 55% and 39% of the housing stock, respectively.

According to Emmanuel Saez, UC Berkeley, the average household income by the bottom 90% of US households is at $34,074 in 2015.  This means that about 90% of families belong to the low-income and very-low-income households, thus cannot afford 50% of the current housing inventory.

US median household income in 2015
Map of states by median household income in 2015. Darker blue indicates higher income

The U.S. Census Bureau reported in September 2017 that real median household income was $59,039 in 2016, exceeding any previous year. This was the fourth consecutive year with a statistically significant increase by their measure –  “U.S. Household Incomes Rose to Record in 2016 as Poverty Fell“. Bloomberg.com. September 12, 2017. Retrieved October 14, 2017.

Despite the increasing real median household income the new metrics by the FHFA reveals an alarming trend that points to an increasing housing affordability problem.  Prices of homes continue to increase across the United States and some of the costs may be directly attributed to government policies.

How does housing affordability affect you?

As a real estate broker or as a lender does housing affordability affect you?  It sure does.  Why?

housing affordability by income class
These charts detail affordability by income class with respect to a) affordability at the time of origination and b) affordability in the three-year period after origination.

If housing affordability decreases this means lesser people will decide to buy a new home.  Most people will certainly decide to rent that get a home mortgage.  If this happens the income and career of those in the mortgage industry will be at risk.  It can also be a dangerous halt to the recovery of the US housing market.

Over the last 12 years, affordability has more than doubled for median-income households by mid-2018, while affordability remained largely unchanged for low- and very-low-income households. This, the study’s authors say, is confirmation of the percolating fear posited in the media that there has been a growing inequity in affordability for certain groups of households. – FHFA

The increase of people going for refinancing may also be an indicator that new home buyers are reconsidering.  Most of these new buyers are millennials and new generations which are said to also be burdened by student debt.

What do you think are the solutions to housing affordability problems?  Are you already affected by it?  Share us your thoughts and feedback on this very crucial housing issue.


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