Freddie Mac on Why Housing Doesn’t Feel ‘Affordable’

If housing so affordable, why doesn’t if feel that way? Freddie Mac, McLean, Va., poses that question and offers some answers.

In its monthly Insight, Freddie Mac Chief Economist Sean Becketti said housing “feels” unaffordable in part because house prices nationally now stand higher than their previous peak at the end of the housing boom and have risen an average of more than 6 percent per year since the house price trough in 2012, whereas per capita income increased only 2.4 percent on average per year.

“Thanks to very low mortgage rates, monthly mortgage payments are affordable for the average household despite currently-high house prices,” Becketti said. “Nevertheless, hurdles to homeownership arise from the difficulty of finding a house. The supply of homes for sale is very tight, especially starter homes. And underwriting requirements are more rigorous than they were in the past.”

The contrast between affordable and unaffordable areas is even more pronounced at the local level. For example, in Marin, San Francisco, and San Mateo counties, the median-income household cannot qualify for a mortgage to buy the median-priced home in any ZIP code in those three counties. On the other hand, the median-income family in Kansas City can afford the median-priced house in all but three ZIP codes.

Freddie Mac said the limited supply of available homes increases the perception that homes are unaffordable. This imbalance between the demand for and supply of homes boosts house prices further and can transform the perception of unaffordability into actual unaffordability.

“Many potential first-time borrowers are stymied by variable employment and income histories and the challenge of accumulating a down payment while simultaneously paying down their student loans,” Becketti said. “A high level of household debt, particularly student debt, poses perhaps the largest obstacle to first-time homebuyers.”