Rising home prices are outpacing wage growth in El Paso County, putting a home purchase out of reach for the average worker, according to a new report.
Buyers are also chasing a shrinking supply of homes for sale, according to ATTOM Data Solutions, a compiler and provider of property data to the real estate industry.
ATTOM Data Solutions' third-quarter U.S. home affordability report, released Sept. 24, shows that that median prices of single-family homes and condos in the third quarter of 2020 are less affordable than historical averages in 63 percent of counties with populations of 100,000 or above, up from 54 percent a year ago.
El Paso County scored 84 on the Q3 affordability index. A score under 100 indicates that homes are less affordable than the area’s historic average.
The Q3 score dropped 2 percent from the area’s affordability index score in Q2 and is down 5 percent from Q3 of 2019.
The area’s median home price of $350,000 rose 13 percent from Q3 of 2019.
According to the index, the annual income in El Paso County needed to buy a home is $68,588. The area’s annual income, based on annualized weekly wages is $52,747.
Growth in home prices is outpacing wage growth in the county. Annualized wage growth is 4 percent, while the year-over-year median home price has increased by 13 percent.
ATTOM concluded that the average Colorado Springs wage earner will find it difficult to qualify to buy a home.
Compared with other Colorado metro areas, Colorado Springs scored higher than Adams, Arapahoe and Denver counties. Pueblo, with an affordability score of 83, ranked lowest of the 11 Colorado counties analyzed in the report.
Douglas County, with a score of 101, was the highest ranking Colorado area. Boulder, Jefferson, Larimer, Mesa and Weld counties also ranked higher than El Paso county.
In another perspective on home affordability, Nationwide Insurance’s research arm ranked Colorado Springs one of the least affordable housing markets in the nation.
Read more about home affordability and how the city is seeking to encourage the development of more affordable housing in the Sept. 25 issue of the Business Journal.
ATTOM’s report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes and insurance — on a median-priced home, assuming a 20 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio.
That required income was compared to annualized average weekly wage data from the Bureau of Labor Statistics.
Compared to historical levels, 308 of the 487 counties analyzed in the third quarter are now less affordable, up from 262 of the same group of counties in the third quarter of 2019.
The fallback has come as spikes in single-family home prices — occurring despite economic troubles related to the ongoing COVID-19 pandemic — have outpaced the impact of increasing wages and declines in mortgage rates to historic lows.
Amid those trends, costs associated with median-priced homes are unaffordable for average wage earners in 61 percent of the counties in the report during the third quarter of 2020. That means that those expenses consume more than 28 percent of average wages.
“In a year when nothing is normal, owning a single-family home has become less affordable to average wage earners across the U.S., despite conditions that would seem to point the opposite way,” said Todd Teta, chief product officer with ATTOM Data Solutions.
“Wage are up and mortgage rates are down to rock-bottom levels, which should work in favor of home buyers. ... But those same low mortgage rates, along with other factors, have led a lot of buyers into the market chasing a reduced supply of homes. The result is price hikes have raced past the impact of wages and mortgage rates,” Teta said.
The largest of the 299 counties in the report where the median home price is not affordable for average wage earners in the third quarter of 2020 include Los Angeles County, California; Maricopa County (Phoenix), Arizona; San Diego County, California; Orange County, California; and Miami-Dade County, Florida.
The 188 counties with affordable median-priced homes in the third quarter of 2020 for average local wage earners (39 percent of the 487 counties analyzed) include Cook County (Chicago), Illinois; Harris County (Houston), Texas; Philadelphia County, Pennsylvania; Hillsborough County (Tampa), Florida; and Cuyahoga County, (Cleveland), Ohio.
Median home prices in the third quarter of 2020 are up by at least 10 percent from the third quarter of 2019 in 252, or 52 percent, of the 487 counties included in the report.
Counties are included if they have a population of at least 100,000 and at least 50 single family home and condo sales in the third quarter of 2020.
The report also revealed that:
• Home price appreciation is outpacing average weekly wage growth in the third quarter of 2020 in 425 of the 487 counties analyzed in the report (87 percent).
• Average annualized wage growth is outpacing home price appreciation in the third quarter of 2020 in only 62 of the 487 counties in the report.
• An annual wage of more than $75,000 is needed in the third quarter of 2020 to afford the typical home in 114, or 23 percent, of the 487 markets.
• Among the 487 counties, 308 (63 percent) are less affordable in the third quarter of 2020 than their historic affordability averages, up from 54 percent of counties in both the previous quarter and the third quarter of 2019, while 179 (37 percent) are more affordable than their historic affordability averages, down from 46 percent in both the second quarter of 2020 and the third quarter of last year.