Affordability, Financial Literacy Issues Persist for Average Wage Earners

Two recent reports, from ATTOM Data Solutions, Irvine, Calif., and the National Foundation for Credit Counseling, Washington, D.C., point to persistent issues facing average wage earners in housing affordability and financial literacy.

ATTOM, in its 1st Quarter U.S. Home Affordability Report, said median home prices were not affordable for average wage earners in 304 of 446 U.S. counties (68 percent) analyzed. It said 73 percent of markets were less affordable than a year ago.

The report also noted eight of the 10 highest-priced counties saw negative net migration in 2017, suggesting affordability was having an impact on local and regional demographics.

“Coastal markets are the epicenter of the U.S. home affordability crisis, but affordability aftershocks are now being felt further inland as housing refugees migrate from the high-cost coastal markets to lower-priced markets in the middle of the country where good jobs are available,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. “That in turn is pushing home prices above historically normal affordability limits in those middle-America markets.”

The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments–including mortgage, property taxes and insurance–on a median-priced home, assuming a 3 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.

The 304 counties where a median-priced home in the first quarter was not affordable for average wage earners included Los Angeles County, Calif.; Maricopa County (Phoenix), Ariz.; San Diego County, Calif.; Orange County, Calif.; and Miami-Dade County, Fla. The 142 counties (32 percent) where a median-priced home in the first quarter was still affordable for average wage earners included Cook County (Chicago), Ill.; Harris County (Houston), Texas; Dallas County, Texas; Wayne County (Detroit), Mich.; and Philadelphia County, Pa.

Eight of the top 10 counties with the highest median home prices in Q1 2018 posted negative net migration in 2017: Kings County (Brooklyn), New York (25,484 net migration decrease); Santa Clara County (San Jose), Calif. (5,559 net migration decrease); New York County (Manhattan), New York (3,762 net migration decrease); Orange County, Calif. (3,750 net migration decrease); and San Mateo, Marin, Napa and Santa Cruz counties in northern California. The two exceptions were San Francisco County, Calif. (5,555 net migration increase); and Alameda County, Calif. (1,286 net migration increase), both of which had large positive international migration outweighing negative domestic migration.

ATTOM said among counties analyzed, 181 (41 percent) were less affordable than their historic affordability averages in the first quarter, up from 35 percent of counties in the previous quarter and up from 24 percent of counties a year ago. The report said 326 counties (73 percent) posted a year-over-year decrease in their affordability index.

Meanwhile, NFCC said its 2018 Consumer Financial Literacy Survey identified “significant differences” in bill payment, savings and retirement and barriers to home ownership.

The online survey of 2,017 adults, conducted in March by Harris Poll, said one in four Americans admit they do not pay their bills on time and nearly one in 10 (eight percent) now have debts in collection, both showing a slight increase from last year. The survey said Millennial women, in particular, face these challenges; he increased proportion of adults who do not pay their bills on time is driven largely by women between the ages of 18 and 34. Nearly two in five women in that age group (39 percent) do not pay their bills on time, making them more likely to be subjected to late fees and other penalty charges.

“Millennials, and more specifically millennial women, continue to face unique financial challenges,” said acting NFCC president and CEO Jeff Faulkner. “Young women are outpacing their male counterparts in completing college degree programs, leading to more who are dealing with student loan debt and a delayed start in the workplace…such circumstances can sometimes contribute to missed bill payments and debts in collection early in a person’s adult life.”

The survey said more than one in three women ages 18 and over (35 percent) lack any trace of non-retirement savings, while men between the ages of 18 and 34 are more likely to have savings than their female counterparts (70 percent vs. 56 percent, respectively). Compounding the savings problem, women are generally more likely than men to be saving less than last year (21 percent vs. 16 percent), including one in 10 who are saving significantly less.

However, some good news for younger adults emerged from the survey. Adults between the ages of 18 and 34, and those 35 to 44, are more likely than older generations to say they are currently saving more compared to one year ago. Generation X (age 35 to 54) is making the most of their 401k retirement plans, while adults over the age of 65 are more likely to rely on investments, mutual funds and IRAs.

The survey said 38 percent of adults who have tried to purchase a home in the past year faced barriers. The pace of rising home prices in the United States is a top concern for potential homeowners, with adults ages 18 to 34, and those residing in the West, are most likely to cite increasing home prices as a barrier when house hunting. Other factors impacting young adults more so than those in other age groups include a lack of funding for down payment or closing costs; existing debt; limited options within their budget, and poor credit history or low credit score.