Homebuyer Report: Overburdened and Overwhelmed

A new quarterly report—the Cost of Housing Index (CHI) published by the National Association of Home Builders (NAHB) and Wells Fargo—found that the affordability crisis in America is growing as some 38% of a typical family’s income was needed to make a mortgage payment on a median priced new build single-family home nationally. 

This number gets even worse for low-income families—defined as those who earn only 50% of their area’s median income—are spending 77% of their earnings to pay for the same new home. 

Traditionally, the mortgage-to-income ratio should fall at 28% or less of monthly gross combined income. Anything over this mark would mean the borrower is cost-burdened. Although, some mortgage programs allow for this number to exceed 55%, especially for low-income borrowers. These borrowers are considered severely cost burdened. 

The U.S. data for the percentage of earnings needed to purchase a new home in the first quarter is based on a national median new home price of $420,800 and median income of $97,800. The corresponding price for an existing home is $389,400. 

The figures found by the NAHB/Wells Fargo track closely for the purchase of existing homes in the country as well. A typical family would have to pay 36% of their income for a median-priced existing home while a low-income family would need to pay 71% of their earnings to make the same mortgage. 

“The Cost of Housing Index clearly shows that a growing shortage of affordable housing is hurting families and communities nationwide and that local, state and federal officials must act on this issue,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “NAHB has released a 10-point plan to tackle the housing affordability crisis that focuses on the need to address excessive regulations, inefficient local zoning rules, costly building codes, and many other factors that are dramatically affecting home prices and preventing builders from constructing more attainable, affordable housing.” 

“With a nationwide shortage of roughly 1.5 million homes, the lack of housing units is the primary cause of growing housing affordability challenges,” said NAHB Chief Economist Robert Dietz. “Policymakers at all levels of government need to enact policy changes that will allow builders to construct more homes, such as speeding up permit approval times, providing resources for skilled labor training and fixing building material supply chains.” 

In eight out of 176 markets in the first quarter, the typical family is severely cost-burdened (must pay more than 50% of their income on a median-priced existing home). In 80 other markets, such families are cost-burdened (need to pay between 31% and 50%). There are 88 markets where the CHI is 30% of earnings or lower. 

The Top 5 Severely Cost-Burdened Markets 

San Jose-Sunnyvale-Santa Clara, Calif., was the most severely cost-burdened market on the CHI, where 84% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by: 

  • Urban Honolulu, Hawaii (73%) 
  • Naples-Marco Island, Fla. (71%) 
  • San Diego-Chula Vista-Carlsbad, Calif. 70%) 
  • San Francisco-Oakland-Berkeley, Calif. (69%) 

Low-income families would have to pay between 138% and 168% of their income in all five of the above markets to cover a mortgage. 

The Top 5 Least Cost-Burdened Markets

By contrast, Peoria and Decatur, Ill., tied as the least cost-burdened markets on the CHI, where families needed to spend just 14% of their income to pay for a mortgage on an existing home. Rounding out the least burdened markets are: 

  • Cumberland, Md.-W.Va (15%) 
  • Springfield, Ill. (16%) 
  • Elmira, N.Y. (16%) 

Low-income families in these markets would have to pay between 28% and 32% of their income to cover the mortgage payment for a median-priced existing home. 

Click here to read the CHI in its entirety. 

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Kyle G. Horst

Kyle G. Horst is a reporter for MortgagePoint. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at kyle.horst@thefivestar.com.
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