Median home prices rose at least 10% in the fourth quarter of 2020, significantly impacting housing affordability for many prospective homebuyers. Of the 499 counties surveyed in Attom Data Solutions’ Home Affordability Index, 275 (55%) experienced this increase in prices. By comparison, home prices were up 43% in the fourth quarter of 2019.
Home prices for single-family homes have experienced steady increases over the past few quarters. According to the National Association of Realtors, in the penultimate quarter of 2020, the median price for an existing single-family home was $313,500. This was up 12% from Q3 of 2019.
Experts suggest that two factors are behind the drop in housing affordability: one, home prices are rising at a pace faster than the average wage, and two, the COVID-19 pandemic has greatly impacted the economy,
Stagnant wages have exacerbated the effect. Homeownership expenses (such as mortgage payments, insurance, and property taxes) now consume 29.6% of average wages across the country. As most lenders prefer a 28% threshold, this could further impact borrowers’ ability to qualify for mortgages. Buyers need annual wages of over $75,000 to afford a median-priced home in a quarter of the counties surveyed in Attom’s report.
Of the 41 counties with a population of at least 1 million, these had the biggest year-over-year gains in median prices:
The drop in affordability is one of the impacts the pandemic has had on the housing market. Plummeting mortgage rates have fuelled buyer demand and pushed great numbers of first-time homebuyers into the market. However, we have seen that low housing inventory has led to bidding wars and climbing prices. In general, the housing market has remained resilient in the face of economic hardships. It is uncertain where the market will swing in the near future. As of now, homebuyers are being impacted by an expensive housing market in an economy that remains volatile.