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Prices toll on affordability By Fidelity Mortgage

Every U.S. metro area tracked by the National Association of Realtors (NAR) in the third quarter of 2020 saw home prices rise, driven by unprecedented demand, low mortgage rates and depleted nationwide housing inventory.

In October, the median listing price for all homes surpassed a milestone record of $350,000, according to the real estate association. Over the same period, median family income nationwide increased just 2.9%.

The rapidly rising prices are beginning to take a toll on home affordability. The average monthly mortgage payment on a typical existing single-family home rose to $1,059 in the third quarter, up from $1,019 in the second quarter, and higher than Q3 of 2019 at $1,032.

At the median U.S. family income of $81,477, mortgage payments accounted for 15.6% of income in the third quarter, an increase from the second quarter share of 14.8% but unchanged from the share seen one year ago. The effective 30-year fixed mortgage rate has fallen by an average of 0.6% from the same time in 2019.

Median single-family home prices grew by double digits in 117 of the 181 areas tracked by NAR, led by Bridgeport, CT, at 27.3%. Demand also drove prices higher in metros with significant inventories of larger, suburban homes, including Boise, ID and Boulder, CO.

All four major regions saw double-digit year-over-year price gains, led by the West (13.7%), but followed closely by the Northeast (13.3%), the South (11.4%), and the Midwest (11.1%).

With home prices continuing to rise, families needed roughly $50,819 in annual income to comfortably afford a mortgage on a typical existing single-family home, up from $48,912 in the second quarter and from $49,536 this time last year.

While a family earning just less than $50,000 could afford a home in 125 of the 181 metro areas studied, eight metros areas required annual earnings of $100,000: At this point, it’s coming up with the initial funds that poses the most problems, according to the NAR analysis. First-time buyers increasingly face difficulty in coming up with a down payment.

Even so, first-time buyers were responsible for 32% of sales in October, up from the 31% in both September 2020 and October 2019. Data shows 59% of these buyers received down payment help from family or friends or accessed a down-payment assistance (DPA) program.

Replenishing the short supply of homes would help decelerate rising costs and improve market affordability.

At the end of the third quarter, 1.47 million existing homes were available for sale, down 19.2% from 2019’s third quarter. As of September, housing inventory totals were equivalent to 2.7-months at the current sales pace.