Housing, at least according to
Freddie Mac vice president and chief economist Sean Becketti, isn't
unaffordable. It just feels that
way. Becketti, in a recent post on the
company's Perspectives blog, says the
media is full of headlines that decry the costs faced by homebuyers today. He cites several, including a recent one from
Business Insider, "An affordable-housing shortage in the US is
about to get worse,"
as an indication of how the current environment feels to most people, but he says,
"Housing is at near-record
affordability, and I can prove it."
His proof is the Housing
Affordability Index (HAI) developed by the National Association of Realtors
(NAR). This is perhaps the most-widely-cited measure of housing affordability
and is currently at record highs. This means, Becketti says, "the median-income family has more than
enough income to qualify for a mortgage to buy the median-price house."
There are however reasons why
homeownership feels out of reach to so many.
First, housing is expensive.
Nationally, prices are higher than they were in 2006, the peak before
the housing downturn and have risen an average of more than 6 percent every
year since hitting bottom in 2012. They show
no signs of slowing down. In contrast, incomes
have not keep pace, increasing only 2.4 percent on average in each of those
years.
Second,
the tight inventory of existing homes increases the perception that homes are
unaffordable. Marketing time is at
record lows, lots of sales are all-cash transactions, and bidding wars are
common. The problem is exacerbated because many homeowners are reluctant to put
their homes on the market for fear they won't find a new one. The imbalance between the supply of homes and
the demand for them drives price increases and serves to transform the
perception of unaffordability into actuality.
Homebuyers
are uncertain if they can qualify for a mortgage, but Becketti states measuring
income against home prices, as the NAR index does, is only part of the story. There is the issue of whether borrowers can
document that their income is stable, a problem for the self-employed and those
working in the gig economy. What about a
borrower's credit score, is it high enough or does a borrower even have one? There are millions of "credit invisibles" who
lack sufficient credit history on which to calculate a credit score.
There are
other qualifications as well, the level of debt carried by the borrower
(debt-to-income ratios are the most common reasons mortgage applications are rejected).
Does the borrower have enough cash
for a down payment? Becketti says this
is one area where help is available.
Freddie Mac's Home Possible Advantage® mortgage that allows borrowers to
put as little as three percent down, and that modest amount can be a gift from
a family member or a government grant.
Becketti says that despite these
hurdles, the HAI is correct, mortgage payments today are more affordable than
at almost any time in history.