Affording A Home
The issue of affordable housing has long been a material factor in political and investment decisions. During the first quarter of 2018, affordability, as measured by the average share of income needed to buy a median-priced house was at its worst since the third quarter of 2008, according to “Attom Data Solutions”. Attom is a multi-sourced national property data warehouse and is frequently referenced by media outlets.
Attom measures affordability by comparing average wages to median home prices, to determine the share of income people need to spend on housing. The three key variables are housing prices, wages and interest rates.
Recently, housing price increases have been relatively modest, but interest rates have been climbing faster than wages. Net, net, affordability has deteriorated.
Investors should take note. Housing affordability is a key political issue and may affect Federal Reserve actions related to interest rates.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA