Home Affordability Gap Grows as Prices Rise Faster than Wages

Here and across the country, rising home prices are creating an affordability gap, especially for first-time home buyers and others whose incomes dictate purchasing modest abodes. Based on current trends, affordability will likely get worse before it gets better, analysts say.

Home affordability got worse by 8 percent over the past year, as home prices increased faster than incomes grew, according to an analysis released yesterday by First American Financial Corporation. “Demand continues to outpace supply as existing homeowners remain reluctant to list their homes for sale for fear of not being able to find a home to buy, while home buyers, enticed by low mortgage rates, continue to enter the market,” said Mark Fleming, the company’s chief economist.

[UPDATE: A separate analysis of home prices and income levels finds Phoenix "severely unaffordable,” yet nowhere near as bad as several U.S. cities.]

Meanwhile, prices of existing homes nationally grew 6.2 percent year-over-year in September, up from a 5.9 percent year-over-year hike in August, according to the  S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, released today. The index is rising at the fastest annual rate since June 2014.

The price figures are not unlike those reported last week by the National Association of Realtors, in which the year-over-year median price of existing home sales rose 5.5 percent in October— the 68th straight monthly hike, NAR said.

Likewise in North Phoenix, prices continue to go up. As reported earlier this month, the average price for existing home sales rose in October across all five NoPho zones — New River & Desert HillsAnthem ParksideAnthem Country Club, the Tramonto & Sonoran Foothills Area, and the Norterra Area — according to a monthly analysis from North Phoenix News and In&Out Magazine.

“Most economic indicators suggest that home prices can see further gains,” said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. His reasoning:

“Rental rates and home prices are climbing, the rent-to-buy ratio remains stable, the average rate on a 30-year mortgage is still under 4 percent, and at a 3.8-month supply, the inventory of homes for sale is still low,” Blitzer explained today. “The overall economy is growing with the unemployment rate at 4.1 percent, inflation at 2 percent and wages rising at 3 percent or more.”

Put simply, wages aren’t climbing as fast as home prices.

“One dark cloud for housing is affordability,” Blitzer said. “Rising prices mean that some people will be squeezed out of the market.”

Lawrence Yun, chief economist for NAR, agrees—unless more homes are built.

“Home prices, after multiple years of fast growth, still show no signs of cooling because of the ongoing housing shortage in much of the country,” Yun said today after learning of the Case-Shiller report. “Housing demand is clearly rising from the improving labor market, but supply is still not kicking higher.”

Home are going under contract quickly, Yun said. Inventory has been on the decline every month for more than two years (on a year-over-year basis). Either demand will be choked off by the affordability squeeze, “or more robust construction needs to take place to calm home prices,” Yun said. “The latter is the much preferred outcome, and would be a win for homebuyers, a win for homebuilders and win for faster economic growth.”

Homebuilding has ramped up in recent years, from a trough that ran from about 2008 to 2012.

New Homes for Sale in North Phoenix 

U.S. housing starts in October were at a seasonally adjusted annual rate of 1.29 million, up 13.7 percent from the previous month but 2.9 percent lower than the October 2016 rate, according to the U.S. Department of Commerce.  And this is about half the pace of 2005 — at the peak of the housing boom.

Meanwhile, homeowners are sitting tight. Prior to 2009, “sellers consistently lived in their home for a median of six years before selling, according to an NAR report released last month. In the past year, the typical seller held on to a home for 10 years before selling.

For prospective Phoenix-area home buyers, there’s a shred of good news. The Case-Shiller analysis found Phoenix home prices up 6.1 percent from a year ago, slightly below the national average increase and well below a few other metro areas, including Seattle (up 12.9 percent) and Las Vegas (up 9.0 percent).

The recent gains are somewhat moderate compared to more volatile periods in recent history. In 2006, just before the housing bubble burst, annual price increases nationally exceeded 12 percent, then for a brief period during the subsequent decline, annual price decreases exceeded 12 percent.


This article was updated Nov. 29 to include information about the number of years people stay in their homes before selling.

Robert Roy Britt

NoPho resident Robert Roy Britt has written for In&Out publications since its inception in 2005. Britt began his journalism career in New Jersey newspapers in the early 1990s. He later became a science writer and was editor-in-chief of the online media sites Space.com and Live Science. He has written four novels.


Robert Roy Britt on Email

Robert Roy Britt

NoPho resident Robert Roy Britt has written for In&Out publications since its inception in 2005. Britt began his journalism career in New Jersey newspapers in the early 1990s. He later became a science writer and was editor-in-chief of the online media sites Space.com and Live Science. He has written four novels.

npneditor has 197 posts and counting.See all posts by npneditor