Affordable housing slipping away from median household income

Most adults in the U.S. think housing affordability is a national problem, even with the recession in the rearview mirror. They also think it’s more challenging to afford a house today than it was for previous generations, according to a report released Thursday by the MacArthur Foundation.

With the Portland-based listing service RMLS showing a nearly 8 percent one-year rise in the county’s median home sale price — and one-year wage growth pegged by the Bureau of Labor Statistics at just 1.5 percent — there is evidence the current market is not working in homebuyers’ favor.

“If everything works as it should, then wages should increase as (home) prices increase,” Wollam said. “Then there’s other extenuating circumstances (such as) less inventory on the market, which puts pressure on prices to go up.”

For the moment, homebuyers should be able to land a median-priced home with a median household income. Even with $750 in additional monthly bills for consumer goods or student loans, Wollam said $60,000 a year, whether that be made by one or more people, is just enough to get into a mortgage.

A Federal Housing Authority mortgage is the most common route for first-time homebuyers. That requires a minimum 3.5 percent down payment — triggering monthly mortgage insurance payments to cover the equity — on a low 3.5 percent interest rate. Such a mortgage comes out to $1,861 a month, according to Lee Schiller at Real Living Real Estate in Camas, and equates to about 37 percent of monthly income.

The federal Department of Housing and Urban Development says households should ideally not spend more than 30 percent of income on housing, but it’s common for lenders to allow households to spend more than that.

Chris Hill, branch manager for NW Capital Mortgage, said the big question is, “How much money do you have left for your other expenses? Every household has its own financial situation, so it’s hard to say what percentage of income should go toward a mortgage payment.”

Just under 16 percent of households spent $2,000 or more monthly on housing in 2014, according to the U.S. Census Bureau. That percentage, according to projections, is almost certainly going to grow.

If housing costs rise another 8 percent over the next year, the median home price will be about $316,400 — pushing the monthly cost for an FHA mortgage to $2,010. That’s 39 percent of a median household income that is expected to rise only to $61,000.

Then there’s the question of the long-awaited rise in interest rates. It likely won’t happen this year due to the presidential election, but as soon as the politics soften, experts expect at least a 0.5 percent interest rate rise in 2017. If it goes as high as 4.5 percent, next year’s median-priced home could cost $2,189 a month.

That all assumes buyers are in a good position as borrowers. Hill said those with below-perfect credit scores may face higher interest rates and could have to shell out more in mortgage insurance, making monthly payments higher than the best-case scenarios above.

Wages aren’t going to be able to make up for that if current trends hold. Regional economist Scott Bailey said it takes a competitive labor market for wages to rise measurably — something that hasn’t happened since the late 1990s.

“You need to get (unemployment) low and keep it really low,” said Bailey, who works for the state Employment Security Department. “Based on comments by the Federal Reserve Board, they are pretty eager to raise interest rates. … They’re much more concerned with getting ahead of inflation than letting wages grow.”

Supply and demand

Then there’s the local housing marketplace itself. Wollam said the time it takes to get housing projects online has squeezed availability and, as supply and demand goes, increased prices. The next three years should see prices “plateau,” however, if inventory rises significantly above the meager 1.2-month supply.

“A larger influx in inventory that will help provide a greater amount of supply,” Wollam said. “That will start to affect prices end of ’17. By 2020, we should see more of a sustainable growth rate in the 3 to 5 percent range and not the 8 to 12 percent range.”

On the demand side, about 16 percent of the nearly 4,000 homes sold in the last six months had “cash” listed in their sold terms, according to RMLS. The Portland-based nonprofit Proud Ground found that a greater percentage of “starter homes” are sold for cash as investors look to flip the home or rent it out for a profit. That’s pitting locals against a type of competition rarely seen here in the past.

With rising prices, the best scenario to help homebuyers would be rising wages. Absent that, Hill emphasized, people should work on their credit, though it could be a gamble considering home costs could potentially grow out of reach in that time.

The main takeaway, Hill said, is that there’s a difference between what potential buyers get approved for and what they can afford. As far as how much of a household’s income should go to housing payments, Hill said: “Only you can determine what you can afford.”