Rising home prices are outpacing household incomes nationwide, making it even tougher on first-time buyers, a new report from the National Association of Realtors and Realtor.com found.
First-time buyers in Hawaii, California, Oregon, Montana, Rhode Island and the District of Columbia struggled the most, according to the Realtors Affordability Distribution Curve and Score, which measures affordability through a combination of data on mortgages, income and Realtor.com listings. Residents in those states can only afford between 19-23 percent of the active housing inventory, according to the NAR report, released on Wednesday.
“The survey confirms that the lack of entry-level supply is putting affordability pressures on too many buyers — especially those at the lower end of the market, where demand is the strongest,” said Lawrence Yun, chief economist at NAR, in a prepared statement. “This is why first-time buyers continue to struggle finding affordable properties to buy and are making up less than a third of home sales so far this year.”
Nationally, the affordability score dipped slightly from 0.86 to 0.84 from March 2017 to March 2018, due to rising home prices and a spike in mortgage rates.
In Ohio, Indiana, Kansas, Iowa, and West Virginia, where housing prices are lower, a typical household can afford 54 to 62 percent of the active housing inventory currently on the market, according to the report.
“Wages are growing, which is welcome news for prospective buyers, but prices are increasing at a faster rate, up almost 6 percent in the first two months of 2018,” Yun said. “Solutions to improve these conditions include more homeowners selling, investors releasing their portfolio of single-family homes back onto the market and more single-family housing construction.”
Despite the overall decline, 14 states saw an increase in affordability scores — led by Vermont, Hawaii and North Dakota — and 35 metro areas also saw an increase.
“We’ve seen affordability improve as inventory declines have begun to lessen these areas,” Realtor.com Chief Economist Danielle Hale said. “More balanced supply and demand dynamics have kept listing price growth below the national average, providing some much needed relief for stretched home buyers in these areas.”