Housing set to become less affordable

May 12, 2004

Median-income buyers priced out of key cities

Inman News

First-time home buyers who have a 10 percent down payment will no longer qualify for a mortgage on a median-priced home this year, and by 2007 repeat buyers who have a 20 percent down payment will not qualify for a mortgage on a median-priced home, according to a Fannie Mae Foundation study on "Homeownership Affordability in Urban America: Past and Future."

This study gauged trends in the affordability of homes for median-income working Americans, focusing on 1990-2003 statistics and projected 2004-08 trends for the nation as a whole, for 11 selected metropolitan areas, and for schoolteachers, nurses, firefighters and police officers.

Median-income workers are already priced out of four of the metropolitan markets studied: Boston, Los Angeles, New York, and San Francisco. In these areas, first-time home buyers must have an income at least twice the area's median-income level to afford a median-priced home. In these four metro areas and in Washington, D.C., many two-income families cannot afford to purchase a median-priced home.

Median-priced homes are affordable or nearly affordable for median-income home buyers in three of the 11 studied metro areas: Atlanta, Houston and Philadelphia, and fast-rising home prices are making homes "barely or nearly affordable to unaffordable" for median-income residents of Chicago, Denver, Seattle and Washington, D.C., the study concludes.

Nationally, average-wage schoolteachers, nurses, police officers and firefighters cannot afford to buy a median-priced home with a 10 percent down payment, and average-wage police officers and firefighters are hard-pressed to purchase a median-price home, even with a 20 percent down payment, the study found.

Assuming a 4.8 percent home-price appreciation rate for the next five years, the median home price could reach $215,200 in 2008, compared with a projected median family income of $64,400 in 2008. At that rate, the home ownership affordability ratio – in which percents above 100 are considered to be unaffordable and percents below 100 are considered to be affordable – is expected to reach 102 percent in 2007 and 108 percent in 2008, the study projects.

Copyright: Inman News Features

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