With home mortgage rates climbing to a seven-year high, typical homes in the Albany, N.Y., region have become less and less affordable this year, according to a regional real estate agents group.
Capital Region Association of Realtors CEO Laura Burns said rising interest rates, which make monthly mortgage payments more expensive, and stagnant wages are making it harder for potential buyers to afford homes, particularly for less affluent buyers looking at modestly priced houses.
So far, these trends have not dampened a brisk real estate market of increasing sales and climbing home prices since the housing market began climbing out of recession-driven doldrums in 2012.
However, a key indicator in the regional real estate market called the "housing affordability index," which is tied to prevailing interest rates, has been steadily declining this year after steadily improving since 2009, according to GCAR figures.
So far, that decline has not blunted home sales prices, said Burns. But the trend is troubling, she said, especially if it continues. "We will see what our September numbers tell us," Burns said.
The indicator shows whether a family earning median household income — meaning an income in the exact middle of all household incomes for that area — has enough income to buy and mortgage the median-priced home.
An affordability score of 100 means the median household has just enough money to afford that median home, which in August cost about $224,700 for the Capital Region.
As interest rates rise, housing affordability scores tend to fall, as rising monthly interest payments price out some potential buyers. Mortgage rates have been steadily climbing since early 2016 and this week, a 30-year mortgage hit nearly 5%, a level last seen in 2011.
Last year, the U.S. median household income was $60,366, according to U.S. Census figures. In the Capital Region, that figure is $83,726 in Saratoga County, $66,204 in Albany County, $64,050 in Rensselaer County, and $62,514 in Schenectady County.
Housing affordability scores above 100 indicate that the median household has more than enough purchasing power relative to the median home price, while scores below 100 mean that household lacks the resources to make that purchase.
Capital Region housing affordability scores first crossed 200 in 2012 and peaked in early 2016 at 220 — meaning the median household income was more than double what was needed to buy the median-priced home, which at that time was about $180,000, according to GCAR figures.
The affordability score zigzagged around 200 until late 2017 and has been declining ever since, hitting 165 in August, which is approaching lows last seen during the Great Recession in 2009 and 2010.
During the worst of the downturn, the affordability score moved as low as 120 for the region.
Burns said that affordability now also appears to be taking a hit because while overall unemployment in the region is low, wages have remained relatively stagnant for many people, so as median home prices have risen, those people have not been able to keep up.
Some of that may be due to "underemployment," she said, in which people are working in relatively low-paying jobs. While that may make unemployment numbers drop, those households lack sufficient purchasing power for major expenditures like homes.
But the affordability issues don't seem to be reducing demand for the region's most expensive homes priced at $400,000 or more, where the sales market remains strong and growing. Those affluent buyers also would be the least likely to be deterred by higher mortgage rates, Burns added.
