Home Affordability Worsens Across U.S. During Second Quarter Of 2023

 

Major Home-Ownership Expenses Consume One-Third of Average Wage; Historic Affordability Hits Low Point Since 2007; Affordability Declines as Median Home Price Spikes 10 Percent

 ATTOM, a leading curator of land, property, and real estate data, today released its second-quarter 2023 U.S. Home Affordability Report showing that median-priced single-family homes and condos are less affordable in the second quarter of 2023 compared to historical averages in 98 percent of counties around the nation with enough data to analyze, continuing a pattern dating back to early 2022.

The report shows that affordability has worsened across the nation this quarter amid a renewed jump in home prices that has pushed the typical portion of average wages nationwide required for major home-ownership expenses up to 33 percent.

ATTOM Q2 2023 U.S. Home Affordability Report

The latest portion is considered unaffordable by common lending standards, which call for a 28 percent debt-to-income ratio. It also marks the highest level since 2007 and remains well above the 25 percent figure from early in 2022, when a spike in home-mortgage rates had just begun to raise ownership costs.

The worsening picture facing home buyers reflects the second shift in the U.S. housing market in the past year, coming as the median single-family home price has shot up to a new record following three quarters of declines. Those declines strongly suggested an end to a decade-long boom period lasting from 2012 into the middle of 2022.

Nationwide, the median single-family home value has risen 10 percent from the first to the second quarter of 2023, to $350,000 – one of the biggest quarterly increases in the past decade. The second-quarter median sits 2 percent above the previous peak hit a year earlier before the market stalled and prices dropped.

This Spring’s price increases have helped to push the typical cost of major ownership expenses up far faster than wages, resulting in declining home affordability.

“The U.S. housing market has done an about-face following a downturn that threatened to usher in an extended period of flat or falling prices. With that has come another blow to how much house the average worker around the country can afford,” said Rob Barber, CEO for ATTOM. “Whether this is just a temporary blip amid this year’s peak buying season or a sign of another extended price surge is anyone’s guess. But any predictions of a market demise were certainly premature – and house hunters are feeling the pinch.”

The ongoing drop-off in affordability comes as multiple forces create an uncertain scenario that could push the U.S. housing market in decidedly different directions.

Home values have jumped at a time when mortgage rates have settled down below 7 percent after more than doubling last year, and the U.S. consumer-price inflation rate has dropped by more than half, to around 4 percent. The stock market has also shown gains recently. All that has put more buying power into the pockets of house hunters, pushing prices up and affordability down.

But that could easily change if a recent uptick in mortgage rates continue, the stock market cools down again or the economy falls into a recession, as some economists predict. The third quarter of 2023 will be a key barometer, given that the long market boom came to a halt during the same period last year.

This report determined affordability for average wage earners by calculating the amount of income needed to meet major monthly home ownership expenses — including mortgage payments, property taxes and insurance — on a median-priced single-family home, assuming a 20 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics (see full methodology below).

Compared to historical levels, median home prices in 565 of the 574 counties analyzed in the second quarter of 2023 are less affordable than in the past. That is up from 550 of the same group of counties in the first quarter of 2023 and from 553 in the second quarter of 2022. It is more than double the number that was less affordable historically, two years ago before average home mortgages rates began to go up.

Meanwhile, major home-ownership expenses on typical homes are considered unaffordable to average local wage earners during the second quarter of 2023 in 420, or about three-quarters, of the 574 counties in the report, based on the 28 percent guideline. Counties with the largest populations that are unaffordable in the second quarter are Los Angeles County, CA; Maricopa County (Phoenix), AZ; San Diego County, CA; Orange County, CA (outside Los Angeles) and Kings County (Brooklyn), NY.

The most populous of the 154 counties where major expenses on median-priced homes remain affordable for average local workers in the second quarter of 2023 are Cook County (Chicago), IL; Harris County (Houston), TX; Wayne County (Detroit), MI; Philadelphia County, PA, and Cuyahoga County (Cleveland), OH.

Home prices surge nationwide, up in more than 90 percent of local markets

After dropping or staying about the same for three straight quarters, the national median home price has increased to $350,000 in the second quarter of 2023 – a new record. The 10.2 percent gain, from $317,496 in the first quarter of 2023, represents the largest quarterly improvement since the second quarter of 2015. The latest figure is also up 2.5 percent from the prior record of $314,500 hit in the second quarter of last year.

At the local level, median home prices in the second quarter of 2023 are up from the early months of this year in 524, or 91 percent, of the 574 counties included in the report. They have risen at least 5 percent in close to two-thirds of the markets analyzed and have hit peaks in almost 40 percent of them.

Data was analyzed for counties with a population of at least 100,000 and at least 50 single-family home and condo sales in the second quarter of 2023 and with sufficient data to analyze.

Among the 47 counties in the report with a population of at least 1 million, the biggest year-over-year increases in median sales prices during the second quarter of 2023 are in St. Louis County, MO (up 19 percent); Broward County (Fort Lauderdale), FL (up 7 percent); Miami-Dade County, FL (up 7 percent); Fulton County (Atlanta), GA (up 6 percent) and Palm Beach County (West Palm Beach), FL (up 6 percent).

Counties with a population of at least 1 million where median prices remain down the most from the second quarter of 2022 to the same period this year are Alameda County (Oakland), CA (down 12 percent); Travis County (Austin), TX (down 12 percent); Allegheny County (Pittsburgh), PA (down 10 percent); Sacramento County, CA (down 8 percent) and Wayne County (Detroit), WA (down 8 percent).

Counties with a population of at least 1 million where median prices have increased most from the first to the second quarter of 2023 are St. Louis County, MO (up 33 percent); Montgomery County, MD (outside Washington, D.C.) (up 19 percent); Fulton County (Atlanta), GA (up 15 percent); Philadelphia County, PA (up 15 percent) and Contra Costa County, CA (outside San Francisco) (up 14 percent).

Wages still growing faster than prices annually in three-quarters of markets

Despite the recent quarterly home-price rebound, weekly annualized wage appreciation still has outpaced home-price changes from the second quarter of last year to the second quarter of this year in 427 of the 574 counties analyzed in the report (74 percent). That was the opposite of the second quarter of 2022 when prices were growing faster annually than wages in 91 percent of the same counties.

The current group where annual wage gains are outpacing price changes includes Los Angeles County, CA; Cook County, (Chicago), IL; Harris County (Houston), TX; Maricopa County (Phoenix), AZ, and San Diego County, CA.

Year-over-year price gains have surpassed average annualized wage growth during the second quarter of 2023 in just 147 of the 574 counties analyzed (26 percent). The latest group where prices are going up annually faster than wages include Broward County (Fort Lauderdale), FL; Santa Clara County (San Jose) County, CA; Palm Beach (West Palm Beach), FL; Montgomery County, MD (outside Washington, D.C.) and Fulton County (Atlanta), GA.

Portion of wages needed for home ownership increases throughout U.S.

With home values shooting up, the portion of average local wages consumed by major expenses on median-priced, single-family homes has grown from the first quarter of 2023 to the second quarter of 2023 in 94 percent of the 574 counties analyzed. It is up annually in 92 percent of them.

The typical $1,949 cost of mortgage payments, homeowner insurance, mortgage insurance and property taxes nationwide now consume 33.4 percent of the average annual $70,031 wage. That is up from 29.9 percent in both the first quarter of 2023 and the second quarter of last year, to the highest level since 2007.

The latest portion tops the 28 percent lending guideline in 420, or about three-quarters of the counties analyzed in the second quarter of 2023, assuming a 20 percent down payment. That is up from two-thirds of the same group of counties a year ago and about 40 percent two years ago.

Home ownership continues to require largest chunk of wages on east and west coasts

Counties where major ownership costs require the largest percentage of wages are concentrated on the east and west coasts, where 19 of the top 20 are located. The leaders include Santa Cruz County, CA (116.8 percent of annualized local wages needed to buy a single-family home); Marin County, CA (outside San Francisco) (110.2 percent); Kings County (Brooklyn), NY (104.4 percent); Maui County, HI (98.1 percent) and San Luis Obispo County, CA (93.8 percent).

Aside from Kings County, NY, counties with a population of at least 1 million where major ownership expenses typically consume more than 28 percent of average local wages in the second quarter of 2023 include Orange County, CA (outside Los Angeles) (84.2 percent required); Queens County, NY (75.2 percent); Alameda County, CA (74.4 percent) and San Diego County, CA (69.9 percent).

Counties where the smallest portion of average local wages are required to afford the median-priced home during the second quarter of this year are Cambria County, PA (outside Pittsburgh) (9 percent of annualized weekly wages needed to buy a home); Schuylkill County, PA (outside Allentown) (11.4 percent); St. Lawrence County, NY (north of Syracuse) (12.7 percent); Wayne County (Detroit), MI (13.7 percent) and Fayette County, PA (outside Pittsburgh) (13.8 percent).

Aside from Wayne County, MI, counties with a population of at least 1 million where major ownership expenses typically consume less than 28 percent of average local wages in the second quarter of 2023 include Allegheny County (Pittsburgh), PA (19.4 percent); Cuyahoga County (Cleveland), OH (19.5 percent); Philadelphia County, PA (19.7 percent) and St. Louis County, MO (25.6 percent).

Annual wages of more than $75,000 needed to afford typical home in half of markets

Annual wages of more than $75,000 are needed to pay for major costs on the median-priced home purchased during the second quarter of 2023 in 292, or 51 percent, of the 574 markets in the report.

The top 25 highest annual wages required to afford typical homes are on the east or west coasts, led by New York County (Manhattan), NY ($383,062); San Mateo County (outside San Francisco), CA ($361,004); Marin County (outside San Francisco), CA ($352,153); Santa Clara County (San Jose), CA ($340,803) and San Francisco County, CA ($327,906).

The lowest annual wages required to afford a median-priced home in the second quarter of 2023 are in Cambria County, PA (outside Pittsburgh) ($14,715); Schuylkill County, PA (outside Allentown) ($20,679); Fayette County, PA (south of Pittsburgh) ($23,555); Robeson County, NC (outside Fayetteville) ($23,937) and St. Lawrence County, NY (north of Syracuse) ($25,405).

Historical home affordability at worst point in 16 years

Among the 574 counties analyzed, 565, or 98 percent, are less affordable in the second quarter of 2023 than their historic affordability averages. That is slightly higher than the 96 percent level of a year ago and well above 40 percent in the second quarter of 2021. Historical indexes have worsened quarterly in 94 percent of those counties, helping to drop the nationwide index to its lowest point since 2007.

Counties with a population of at least 1 million that are less affordable than their historic averages (indexes of less than 100 are considered less affordable compared to historic averages) include Collin County (Plano), TX (index of 61); Tarrant County (Fort Worth), TX (62); Mecklenburg County (Charlotte), NC (63); Dallas County, TX (64) and Hillsborough County (Tampa), FL (64).

Counties with the worst affordability indexes in the second quarter of 2023 include Clayton County, GA (outside Atlanta) (index of 51); Richmond County (Augusta), GA (53); Rankin County, MS (outside Jackson) (55); Newton County, GA (outside Atlanta) (55) and St. Lucie County (Port St. Lucie), FL (57).

Only 2 percent of markets are more affordable than historic averages

Among the 574 counties in the report, only nine (2 percent) are more affordable than their historic averages in the second quarter of 2023. That is slightly less than 4 percent a year ago and far below the 60 percent level in the second quarter of 2021.

Counties that are more affordable in the second quarter of this year compared to historical averages include Cambria County, PA (outside Pittsburgh) (index of 110); Macon County (Decatur), IL (index of 109); New York County (Manhattan), NY (108); Saratoga County, NY (outside Albany) (107) and Columbiana County, OH (outside Pittsburgh, PA) (105).

https://www.attomdata.com/news/market-trends/home-sales-prices/attom-q2-2023-u-s-home-affordability-report/

Cities Where Airbnb Revenue Has Taken a Major Nosedive

 After its 2008 launch, Airbnb  (ABNB) - Get Free Report quickly revolutionized the way people traveled -- not to mention launching a whole new segment of the gig economy. 

Many Airbnb owners have also shared how much money they make annually from the platform, with Hawaii, Tennessee, and Arizona being several of the most lucrative places.

Or at least, they were. A recent report from short term rental analytics company All The Rooms reveals the data on what many have been calling the Airbnb collapse, showing that some cities' Airbnb revenue has dropped close to 50%, with Sevierville, TN down -47.6% from 2022. Phoenix, Z and Austin, TX also top the list at -47.2% and 46.1% respectively

Many speculate that the reason for the crash is the contrast between a surge of travel in 2022 as the pandemic eased and this year, where rising cost of living and a looming recession have people pulling back on travel spending.

However, another issue is sheer density. In his thread on the topic, CEO of Reventure Consulting Nick Gerli explains that while the number of Airbnbs and VRBO rentals has continued to rise as the years have gone on, the number of homes for sale has gone down -- which causes what Gerli calls "a huge home price downside."

Gerli also says he thinks newbie Airbnb owners could be in trouble, especially if they bought a property over the past few years and have a mortgage.

"They got in at a high price. And have a high monthly payment. And little margin for error. They could be some of the first to sell later in 2023 when the season ends," he says.

On the other hand, the situation looks better for more experienced Airbnb owners, especially those who "got in before the pandemic," he says.

"They paid less for their Airbnb. Have a cheaper mortgage rate. And more experience. They will be less inclined to sell."

https://www.thestreet.com/real-estate/these-are-the-cities-where-airbnb-revenue-has-taken-a-major-nosedive

BLDG brings in $425M for LIC tower

 Long Island City’s tallest tower will be built in short order after the developer landed a large loan for the project.

BLDG Management scored $425 million in construction financing for its development at 42-02 Orchard Street in the Queens neighborhood, the Commercial Observer reported. The planned 69-story tower is aptly named The Orchard.

M&T Bank was the leader of the financing, along with U.S. Bank and Bank of China. Other contributors to the loan included Israel Discount Bank, City National Bank and Bank Hapoalim.

A Greystone Capital Advisors team led by Drew Fletcher and Paul Fried arranged the deal.

Two years ago, Lloyd Goldman’s real estate investment firm filed plans for the 800,000-square-foot project, which includes 824 units. The 780-foot tall property, designed by Perkins Eastman, will have multiple ground-floor retail spaces, more than 60 floors of residential units, swimming pools, a gym and lounges.

Critically, the project is expected to qualify for the 421a affordable housing tax break, which would make it one of the last to get in the door. The exemption requires 30 percent of units to be designated for households earning at or less than 130 percent of the area median income.

The project is expected to be completed around 2026, which is good news for the tax break’s chances of coming into play: the break requires projects to be in construction by June 15, 2026. 

The Goldman family has controlled the parcel going back to 1975. At one point, it was controlled by Goldman’s father and uncle, Irving and Sol Goldman.

https://therealdeal.com/new-york/2023/06/22/bldg-brings-in-425m-for-lic-tower/

What is a 'Frankenstein' apartment and is it legal?

 

I’ve heard that landlords can dramatically hike the rent on stabilized apartments by combining or dividing them. How does this work, and is it legal?

Yes, there is a loophole for landlords of stabilized units that allows them to raise the rent by combining or chopping up existing units and turning them into so-called “Frankenstein apartments,” says Sam Himmelstein, an attorney at Himmelstein, McConnell, Gribben & Joseph who represents residential and commercial tenants and tenant associations.

From 1993 to 2019, landlords were able to remove apartments from rent stabilization through a combination of vacancy increases—the rent would go up when new tenants moved in—and apartment improvements— rent increases proportional to the cost of documented, significant renovations to the apartment. Through these increases, landlords eventually raised the rent over the stabilization threshold, and could make the apartment market-rate.

The Housing Stability and Tenant Protection Act (HSTPA) of 2019 did away with these practices, making it much more difficult for landlords to remove apartments from rent stabilization or raise rents.

But one loophole remains: “If a landlord significantly alters the apartment, by combining two apartments, for instance, or chopping up an existing one into smaller units, they can charge whatever they want as the 'first rent,'” Himmelstein explains. “The apartment will still be rent-stabilized, but the new rent can be whatever a new tenant is willing to pay.”

The ability of landlords to create “Frankenstein" apartments out of stabilized units has been a longstanding policy of the state Division of Housing and Community Renewal, from before vacancy deregulation was legal.

“The DHCR has held that if the landlord in effect created a new apartment by combining or dividing apartments and substantially altering its outer perimeter, that apartment technically never existed before, and the landlord could set what is known as first rent,” Himmelstein says. “That rent was potentially whatever the market would bear.”

These apartments will remain rent stabilized, but at a much higher rent.

This isn’t necessarily easy for landlords to accomplish, though: creating a Frankenstein apartment depends upon two nearby units both being vacant, so they can be combined, or one unit being large enough that it can be divided into multiple, smaller units.

And the alterations must be substantial for the apartment to qualify for first rent.

“We just won a case in state Supreme Court in which a landlord claimed they had substantially altered the apartment and was charging first rent,” Himmelstein says. “They had moved one wall to increase the apartment size by 8 or 9 percent, and the court ruled that was not enough to qualify for first rent and the apartment was still stabilized and the tenant had been overcharged.”

Furthermore, the policy may not be around for much longer: The DHCR is considering closing this loophole, according to Gothamist. And the New York state legislature is considering legislation which would bar Frankensteining.

“As a result, a lot of landlords are pushing really hard to do this while they still can, and some buyout negotiations with stabilized tenants have accelerated,” Himmelstein says.

https://www.brickunderground.com/rent/frankenstein-apartments-rent-stabilization-rent-increase

May Housing Starts: Record Number of Multi-Family Housing Units Under Construction

 

Housing Starts Increased Sharply to 1.631 million Annual Rate in May

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,631,000. This is 21.7 percent above the revised April estimate of 1,340,000 and is 5.7 percent above the May 2022 rate of 1,543,000. Single‐family housing starts in May were at a rate of 997,000; this is 18.5 percent above the revised April figure of 841,000. The May rate for units in buildings with five units or more was 624,000.

Building Permits:
Privately‐owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,491,000. This is 5.2 percent above the revised April rate of 1,417,000, but is 12.7 percent below the May 2022 rate of 1,708,000. Single‐family authorizations in May were at a rate of 897,000; this is 4.8 percent above the revised April figure of 856,000. Authorizations of units in buildings with five units or more were at a rate of 542,000 in May.
emphasis added

The first graph shows single and multi-family housing starts since 2000 (including housing bubble).

Multi-family starts (blue, 2+ units) increased in May compared to April. Multi-family starts were up 33.2% year-over-year in May. Single-family starts (red) increased sharply in May and were down 6.6% year-over-year.

Note that the weakness over the last year had been in single family starts (red).

The second graph shows single and multi-family starts since 1968. This shows the huge collapse following the housing bubble, and then the eventual recovery - and the recent collapse in single-family starts.

Total housing starts in May were well above expectations, however, starts in March and April were revised down, combined.

The third graph shows the month-to-month comparison for total starts between 2022 (blue) and 2023 (red).

Total starts were up 5.7% in May compared to May 2022.  Starts had been down year-over-year for twelve consecutive months, and I expect total starts to be down this year - although the year-over-year comparisons will be easier the rest of the year.

Record Number of Multi-Family Housing Units Under Construction

The fourth graph shows housing starts under construction, Seasonally Adjusted (SA).

Red is single family units. Currently there are 695 thousand single family units (red) under construction (SA). This was down in May compared to April, and 136 thousand below the recent peak in May 2022. Single family units under construction peaked a year ago since single family starts declined sharply.

Blue is for 2+ units. Currently there are 994 thousand multi-family units under construction.  This ties the record set in July 1973 of multi-family units being built for the baby-boom generation. For multi-family, construction delays are a significant factor. The completion of these units should help with rent pressure.

Combined, there are 1.689 million units under construction, just 21 thousand below the all-time record of 1.710 million set in October 2022.

Comparing Starts and Completions

Below is a graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12-month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions. Builders are still starting more multifamily units than they are completing.  Multifamily starts (blue) picked up again, and completions (red) are increasing - and the gap is still huge.

The last graph shows single family starts and completions. It usually only takes about 6 months between starting a single-family home and completion - so the lines are much closer than for multi-family. The blue line is for single family starts and the red line is for single family completions.

The recent gap between starts and completions has disappeared, and builders are now completing more single-family homes than they are starting on a 12-month basis. Completions are beginning to follow starts down.

Conclusions

Total housing starts in May were well above expectations, however, starts in March and April were revised down, combined. The weakness over the previous 12-months was in single family starts. However, single family starts have now picked up since there is limited existing home inventory.

I expect multi-family starts to turn down in 2023, but multi-family starts are continuing to surprise to the upside.

A record number of multi-family housing units are under construction due to construction delays, but the number of single-family housing units under construction is now declining. This suggests a large number of multi-family housing units will be delivered later this year and in 2024.

https://calculatedrisk.substack.com/p/may-housing-starts-record-number