Why Are Average Earners Struggling to Become Homeowners?

According to data from the National Association of Home Builders (NAHB) and bank Wells Fargo, only 69.3% of all American homes sold between April and June 2013 were affordable to families earning less the median income of $64,400. This is a big decrease from the start of the year, where 73.7% of homes sold were considered as “affordable” according to the same criteria.

Why is housing affordability so low?

In 2013 incomes have remained generally stagnant, with pay rises or promotions occurring seldom by and large. In addition, home price have been higher and mortgage rates are becoming more expensive. All of these factors are contributing to the climate of difficulty for the average homebuyer this year. Compare this to 2011, where 78% of homes sold were affordable, at a time where mortgage rates were very favorable and prices much lower due to the recession, and the picture looks much different.

Home prices and rates increase

As the average home price rises and rates are on the up, the market has regained buoyancy taking the conditions into good territory for sellers, rather than those looking to purchase properties. The so called “buyer’s market” is characteristically one where rates are cheaper and prices lower – the opposite of the current conditions. According to NAHB and Wells Fargo, the median price of all existing and new homes that were sold during April – June 2013 was $202,000. This represents a 9.2% increase from the same time in 2012, where the median house price of sold homes was $185,000. At the same time as this, mortgage interest rates have also gone up during the same period – from 3.68% in the second quarter of 2013 to 3.99% in the second quarter in 2013.

Which are currently the most affordable areas?

The top 5 most affordable places within American for residents of those towns and cities to buy houses and apartments are:

1. 1.       Ogden, Utah

The metro area surrounding Ogden, Utah is officially America’s most affordable area in which to buy a home. The region’s median income is $70,800, which gives residents earning up to this amount the ability to afford a massive 92.8% of homes that were sold there during the period of the NAHB/Wells Fargo study. This was the fourth consecutive quarter in which the Ogden area ranked as the most affordable.

1. Indianapolis, Indiana
2. Harrisburg, Pennsylvania
3. Youngstown, Ohio
4. Buffalo, New York

Which are currently the least affordable?

The five least affordable cities and regions for residents to purchase homes are:

1. 1.       San Francisco, California

The San Francisco metropolitan area is the least affordable area for home buyers. The average family there can only afford 19.3% of the homes for sale. This is despite the median income being much higher than the national average – at a huge $101,200.

1. Los Angeles, California
2. Santa Ana, California
3. New York City, New York
4. San Jose, California.

What is the outlook for the next year?

According to a Wall Street Journal report published recently, the loan limits for many popular types of mortgage are due to decrease substantially in January 2014. This means that it will get very suddenly much more difficult to purchase a home with a mortgage. To make matters worse, the Federal Finance Housing Agency plans to drop the maximum number of mortgages that can be provided by Fannie Mae and Freddie Mac, the two biggest mortgage companies in the U.S. This is due to be a big blow – in some parts of the country, mortgages backed by these companies exceed $417,000 or even up to as much as $625,000 in New York and San Francisco.

Mortgage restrictions due to come into effect

Also in January 2014, the Consumer Finance Protection Bureau is due to introduce new mortgage rules. These will restrict the types of mortgages that lenders can provide. As such, it makes sense for those wishing to purchase properties to act now, before their options become more limited, come the New Year, when the mortgage conditions will become even less favorable to borrowers.

What will be the alternatives available to those unable to get Fannie Mae and Freddie Mac loans?

The private market will be the most appealing alternative for those who will be prevented from getting mortgages from Fannie Mae and Freddie Mac come January.

Examples of private lenders that may provide mortgages include:

• Banks
• Credit Unions
• Independent mortgage lenders

What are the down sides of private lenders?

Some drawbacks of opting for private lenders include the requirement of high down payments (of at least 20% or 20%) and the high level of selection with which private lenders screen potential mortgage borrowers, preferring those with excellent credit scores, high incomes and those who demonstrate very low risk.

Share your experiences of trying to buy a home with our readers. Have you found it more or less difficult in the second half of 2013 than at the start of the year? Comment below!