Second, renting is often cheaper than buying. A study from ATTOM Data Solutions found that “renting a three-bedroom property is more af- fordable than buying a median-priced home in 442 of 755 U.S. counties analyzed for the report – 59%.” “With rental affordability out- pacing home affordability in the majority of U.S. housing markets, and home prices rising faster than rental rates, the American dream of owning a home, may be just that — a dream,” said ATTOM spokes- person Jennifer von Pohlmann. Can the trends now in place change? Possibly. Less price ap- preciation, lower mortgage rates and rising household incomes could make ownership attractive for many potential first-time buy- ers. At least part of this formula is now in place. Mortgage rates for 30-year fixed-rate financing reached 3.99% at the end of May, down from 4.56% a year earlier according to Freddie Mac. IS OWNERSHIPWORTH IT? For many potential first-time buyers the issue is not cost, it’s value. Simply put, many believe ownership is a possible disad- vantage. After all, if you rent or live with Mom and Dad, there’s someone else to do repairs. You can spend on the things you really want. If you suddenly get a job on the other side of the country, there’s no home to sell. A recent ValueInsured Modern Homebuyer Survey finds that “only 43% of millennials believe buying a home today is a secure financial investment, down 16 points from 59% in Q1 2017. In other words, millennials today find homeowner- ship to be less attainable, require more sacrifices, and riskier. It is

ee is paid $5,000 each month, the gig worker might earn $6,000 in one month and $4,000 in anoth- er. Monthly income swings make budgeting – and required mortgage payments – difficult for first-time buyers without adequate reserves. Mortgage Rates. There’s no question that mortgage rates impact affordability, there’s even a number to show how much. Lawrence Yun, chief economist with the National Association of Real- tors, estimates that each .1% rate increase results in 35,000 fewer home sales. We don’t know where interest rates will go, whether they will continue at bargain-basement levels or not. What we do know is that the rate environment for the past decade has been exceptional- Millennials,” according to the Urban Institute, “prefer living in high-cost cities, where housing supply is inelastic. Within a city, millennials prefer living in counties with a more urban environment, where the house prices have increased more than in the surrounding areas. The shift in geographic preference is mostly observed among highly- educated millennials.” URBAN INSTITUTE

ly-positive. Looking at weekly Fred- die Mac interest levels between April 1971 and March 2019, the average mortgage rate was 8.08%. That compares with an annual rate of 4.54% in 2018 and just 4.31% for the first four months of 2019. Prices vs Payments. The catch is that the central concern for many first-time buyers is not the mortgage rate, but the size of the monthly payment. The Nation- al Association of Realtors (NAR) says median home prices in April reached $267,300, “the 86th straight month of year-over-year gains.” The “median” national price, however, is not the typical price found everywhere. A just-released study by the Brookings Institute shows that two- thirds of the nation’s employment growth and three-quarters of its GDP growth can be found in just 490 counties. Little is left over to be divided among the remaining 2,622 counties. Most geographic areas

have numerous affordable housing options for first-time buyers, but not the chic metro cores where most of the jobs, dollars and op- portunities are found. If you’re a first-time buyer with 5% down how much income do you need to purchase? Across the country, says the National Asso- ciation of Realtors, purchasers need $60,143 but the real answer depends on where you buy. The NAR study shows that you need a big income to purchase in metro areas which include such cities as Anaheim, CA ($188,832), Boston ($108,862), Boulder, CO ($142,474), Denver ($105,415), Los Angeles ($129,492), Naples, FL ($101,261), San Diego ($146,345), San Fran- cisco ($219,517), San Jose, CA ($287,969), and Seattle ($117,312). Alternatively, there are plac- es where a modest income can readily result in ownership, loca- tions where typical home prices are less than the cost of many

SUVs. Think of metro areas that include Akron, OH ($32,739), Am- arillo, TX ($37,200), Binghamton, NY ($25,303), Cumberland, MD ($23,439), Davenport, IA ($29,741), Decatur, GA ($19,072), Peoria, AZ ($25,587) Waterloo-Cedar Falls, IA ($28,372), and Youngstown, OH ($21,055). Even where prices appear attractive there’s some question as to how many renters are interested in ownership. “Millennials,” according to the Ur- ban Institute, “prefer living in high- cost cities, where housing supply is inelastic. Within a city, millennials prefer living in counties with a more urban environment, where the house prices have increased more than in the surrounding areas. The shift in geographic preference is mostly observed among highly-edu- cated millennials.” While everyone has their likes, the reality is that housing costs are a huge weight for many potential first-time purchasers.

A recent home affordability report from ATTOM Data Solutions showed that leading metro areas are largely off-limits to most wage earners. A review of 473 counties found that 335 — 71% — “were not affordable for average wage earn- ers” even with just 3% down. For many first-timers the lack of affordability is visible in two ways. First, many potential buyers simply do not have the dollars needed for the purchase of a home. According to the Federal Reserve, “relatively small, unexpected expenses, such as a car repair or replacing a broken appliance, can be a hardship for many families without adequate savings. When faced with a hypothetical expense of $400, 61% of adults in 2018 say they would cover it, using cash, savings, or a credit card paid off at the next statement.” Translation: 39% cannot readily finance a small emergency with cash on hand or credit.

16 | think realty housing news report :: august / september 2019

thinkrealty . com / hnr | 17

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