Homeownership affordability slumps due to pandemic - here’s how to improve your chances of buying a home

Homeownership affordability slumps due to pandemic - here’s how to improve your chances of buying a home
(Image credit: Getty)

Potential home buyers are increasingly being priced out of the market as surging house prices outpace wage rises across almost all of the US. According to Attom Data Solutions, property prices have soared amid heightened competition for a limited supply of homes for sale, leaving typical workers struggling to afford the home moves they wish to make, despite the best mortgage lenders offering home loans at near-record low rates. 

The median home prices of single-family homes and condos in the third quarter of 2020 are now less affordable than historical averages in 63% of counties across the US, up from 54% a year ago, the new report showed. Affordability is calculated on the income an average worker needs to meet mortgage, property tax and insurance payments each month on a median-priced home, assuming they have a 20% down payment and use no more than 28% of their income on those payments. The data also reveals that house price rises are outpacing wage growth in almost 90% of property markets across the US, putting extreme pressure on affordability even before extra moving costs, such as the best truck rental for moving, are taken into account. 

New home

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“In a year when nothing is normal, owning a single-family home has become less affordable to average wage earners across the U.S., despite conditions that would seem to point the opposite way,” said Todd Teta, Chief Product Officer with the property data firm. 

“Wages are up and mortgage rates are down to rock-bottom levels, which should work in favor of home buyers. On top of that, the American economy has suffered greatly since the Coronavirus pandemic began surging over the Winter – a plight that normally would drop home demand and home prices. But those same low mortgage rates, along with other factors, have led a lot of buyers into the market chasing a reduced supply of homes. The result is price hikes have raced past the impact of wages and mortgage rates.”

Where is buying most and least affordable?

As is to be expected, some areas remain more affordable than others, with Cook County (Chicago), Harris County (Houston), Philadelphia County, Hillsborough County (Tampa), and Cuyahoga County (Cleveland) among the largest counties surveyed where prices remain most within buyers’ reach. At the other end of the scale, the least affordable counties include Los Angeles County, Maricopa County in Phoenix, San Diego County, Orange County (outside Los Angeles), and Miami-Dade County. 

Homeownership affordability slumps due to pandemic - here’s how to improve your chances of buying a home

(Image credit: Getty)

With separate figures from the National Association of Realtors showing a year-over-year rise of 11.4% in the median existing-home price in August to $310,600, it is easy to see why so many buyers no longer have the means to now afford a new home. The Attom data suggests just over half (52%) of the counties surveyed have seen house prices rise by more than 10% compared with a year earlier, with the largest gains recorded in Philadelphia County (up 20%), Franklin County, Columbus (up 16%), Contra Costa County, outside San Francisco (up 15%), and Maricopa County, Phoenix (up 14%). 

Will I still be able to afford a new home?

If you’re looking to move home in the not-too-distant future, it’s best not to get too despondent just yet. As the research reveals, in some areas affordability still shouldn’t be too much of an issue, and will hold particularly true if you’re already on the property ladder and comfortable in the security of your job. 

For those perhaps less fortunate in their starting point, there are many factors that remain in your favor too. Not least, the cost of borrowing remains very close to historic lows, providing terrific opportunities to tie up a mortgage deal with manageable monthly payments.

Indeed, according to recent calculations by Zillow, a typical home bought with a 20% down payment now will cost around $851 a month in principal and interest payments, compared with $882 a year ago, when the price of a typical American home was around $11,000 cheaper but mortgage rates were much higher. 

Homeownership affordability slumps due to pandemic - here’s how to improve your chances of buying a home

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What do aspiring home buyers need to do? 

What is important to bear in mind is that the pandemic and resulting economic uncertainty has made even the best refinance mortgage companies more cautious in who they are willing to lend to. For this reason, borrowers need to present themselves to mortgage companies in the best light possible, complete with all evidence required in relation to income and employment, credit cards borrowing and debts, and so on. A good credit score will further your case for approval too, so make use of the best credit repair services if you must, and try not to give a mortgage lender a reason to turn you down.  

Importantly, consider that different mortgage lenders offer different mortgage rates. So while rates are historically low at a general level, you’ll still secure an even better deal if you seek out the very best mortgage lenders. Fortunately, comparison sites such as LendingTree make the shopping around process far quicker and easier now than ever before. Filling in just one form with your circumstances and mortgage requirements will see a number of mortgage lenders approach you with what they are willing to offer and on what terms. It’s then up to you to decide which quote works best for you - and to start preparing for your move, of course.  

Tim Leonard

With over 20 years’ experience in the financial services industry, Tim has spent most of his career working for a financial data firm, where he was Online Editor of the consumer-facing Moneyfacts site, and regularly penned articles for the financial advice publication Investment Life and Pensions Moneyfacts. As a result, he has an excellent knowledge of almost areas of personal finance and, in particular, the retirement, investment, protection, mortgage and savings sectors.