It's Time to Get Real About the Home Affordability Crisis
Editor's Note: This article is part of the National Mortgage News' MBA Annual Special. Click here to see more from the report.
Buying a home is becoming less and less affordable. While wage gains managed to outpace home price appreciation earlier this year, in recent months the tide has shifted against affordability, according to Attom Data Solutions.
"The big takeaway is that affordability is worsening," said Daren Blomquist, an Attom senior vice president. The real estate data company's affordability index was below normal in 25% of all counties nationwide, the highest level of unaffordable markets recorded since the third quarter of 2009. And this shift away from affordability isn't just happening in the country's most expensive ZIP codes.
"It's not just the San Francisco's and Brooklyn's of the world that are having this affordability issue," Blomquist said, listing Denver, Dallas and even some parts of the Detroit metropolitan area as regions where affordability has dropped below normal.
Consequently, lenders need to learn how to read this data properly to better gear their strategy to the prevailing economic trends. Affordability will pose a challenge to lenders, Blomquist said, because it's going to mean a weakening in demand for purchase loans. On the other hand, home equity line of credit originations are spiking, which presents an opportunity for lenders who can get into this business, he said.
Another opportunity that presents itself based on the data is lending to investors, who are making up much of the purchase demand in the more affordable markets across the country.
"We're in a new world where homeownership rates are staying pretty low and not budging up very much, so a much bigger piece of the market is investors who are buying homes as investment properties or rentals," Blomquist said.
Of course, these lenders present their own risks, he cautions, since they're not owner-occupants and are therefore more likely to default when times get tough. That makes the underwriting of the loan all the more important.
"As long as they're underwriting the property as an income-producing asset, the worst case scenario if they have to foreclose on it is they're getting an income-producing asset," he said.