Despite Falling Rates, 70% Of US Homes "Unaffordable" To Average American

The general trend of torrid housing market growth fueled by low interest rates and a tight supply continued largely unchanged during the last quarter of the decade, as most expected it would. Though buyers who have struggled with highly unaffordable home prices in recent years did see a bit of a respite.

On Wednesday, Attom published its Q4 2019 report on home affordability in the US. The report showed that the dominant trend of the past few years was still very much in place. To wit, the median home prices in the fourth quarter of 2019 were unaffordable for average wage earners in 344 of 486 - or 71% - of the counties analyzed in the report.

To be sure, some slight progress was made: the figure was down from 73% in the prior quarter, and 75% during Q4 2018.

Home prices also climbed 9% YoY, according to the report, though falling mortgage rates offered buyers a bit of respite from the typically brutal market conditions.

"Home prices rose across the country by 9 percent year-over-year in the fourth quarter of 2019, and the typical home remained a financial stretch for average wage earners. However, homes were actually a bit more affordable because of declining mortgage rates combined with rising pay to overcome the continued price run-up," said Todd Teta, chief product officer with ATTOM Data Solutions.

"As long as people are earning more money and shelling out less to pay off home loans, the market should remain strong with prices continuing to rise, at least in the near term."

Unfortunately for the youngest buyers, that means rates will likely need to fall much further for it to make much of a difference. And as long as they don't, the status quo looks like it will hold for a while.

Because Attom also found that home price growth is outpacing wage growth in 76% of the markets it analyzes, which doesn't bode well for the next generation of homebuyers. In two-thirds of the counties examined, homebuyers needed at least 30% of their annual wages just to put a down payment and pay the fees that come with buying a home.

To try and put things in perspective, Attom compares its contemporary affordability metrics with historical averages to determine whether the housing market in a given county is more, or less, affordable than its historical mean. Among the 486 counties that Attom's researchers look at, 230 - 47% - were found to be less affordable than their historic averages, down from 52% of counties in the previous quarter, and 71% of counties during the fourth quarter of 2018.

That's still not great: It means roughly half of the counties in this country are less affordable than their historical averages.

Then again, if homebuyers are worried about their place in the economy, perhaps they should consider that they're better off than many.

Earlier today, we posted an interview with Stanley Druckenmiller during which the legendary fund manager rattled off statistics suggesting the populist fervor that has emerged over the past ten years was fundamentally misguided. Poverty, Druckenmiller said, is down, both in the US, and around the world.

But we suspect that the reason so many Americans feel broke and desperate isn't because they are technically below the poverty line, or fear they might soon be there. It's not because they can't afford basic staples like food (though many can't), it's that they're so steeped in debt and squeezed by rising prices on homes, health care etc. (though the Fed can't seem to find a lick of inflation anywhere) that home ownership, the foundation of a healthy financial life, seems out of reach. Millennials who can't afford a down payment miss out on building wealth instead of wasting money on rent. Some studies claim that up to 75% of millennials believe they may never own their own home.

Unless this trend reverses substantially in the coming decade, Americans will be in trouble.