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Buying or renting, housing affordability just gets worse

Mortgage rates may be hovering near record lows, but it's not enough to counter the sky-high, and still rising, prices in many of the nation's largest housing markets.

Big-city rents have been soaring, but now the outlying areas where residents flee to find affordability are seeing even bigger rent gains, too. For homebuyers, the picture is not much better. A very tight supply of homes for sale is pushing home values higher and pricing potential buyers out, both first-time and move-up buyers.

Big cities have always been expensive, but in a troubling new twist — suburban areas are becoming unaffordable faster than their urban neighbors, according to a new report by Trulia. Brooklyn, New York, is actually seeing a bigger drop in affordable rental listings than Manhattan. The same is true in Oakland, California, compared to San Francisco and Scottsdale, Arizona, compared to Phoenix. Portland, Oregon, and Seattle have seen a big influx of residents fleeing pricey Northern California and are now becoming more unaffordable than the San Francisco Bay area.

Real Estate agents with homes for sale listings
Alex Segre | Getty Images

This is not to say that rents are decreasing in the big cities though. In San Francisco, about 61 percent of one-bedroom homes are renting for $3,000 or more per month; that is 6 percentage points higher than a year ago, according to Trulia. In the Dallas suburbs of Frisco, Plano and Irving, the share of affordable listings is falling, even as Dallas itself is seeing a slight increase in that share.

Homebuying is not much better. Even with a low down payment, buyers today are shelling out a higher share of their annual income to make that investment, especially first-time buyers.

"Saving for a down payment can be difficult for prospective first-time homebuyers given the absence of substantial wage growth in recent years combined with the burden of student loan debt many are struggling under," said Daren Blomquist, senior vice president at RealtyTrac. "Even just a 3 percent down payment requires 14 percent of annual wages on average across the 513 counties we analyzed, and in 67 counties a 3 percent down payment requires more than one-fifth of annual wages."

RealtyTrac looked at down payment assistance programs across the nation and did find some relief. These programs, including state, federal and local, can save an average of nearly $18,000 for homebuyers. This comprises both the down payment savings on a median-priced home and the average savings on monthly payments over the life of the loan.


Buyers in certain markets can see bigger savings. The biggest help comes in Kauai County, Hawaii ($80,148 total savings over the life of the loan); Placer County, California, in the Sacramento metro area ($78,539); San Francisco County, California ($77,411); Orange County, California, in the Los Angeles metro area ($74,268); and Shasta County (Redding), California, ($70,806), according to RealtyTrac, which partnered with Down Payment Resource for the report.

While down payment assistance can help some, the real relief will only come from more homes for sale, and so far the market isn't seeing them. Homebuilders are still producing at well-below historical norms, never mind the years of pent-up demand from buyers. Adding to the crunch is a large share of buyers who are still underwater on their mortgages.

While 268,000 borrowers came back into the black in the first quarter of this year, thanks to rising home values, 4 million are still in a negative equity position on their mortgages, owing more than the homes are worth, according to CoreLogic. This, even as home equity rose by a collective $762 billion in the first quarter. It just shows how far the housing market fell, and how much it still has to recover.

"In just the last four years, equity for homeowners with a mortgage has nearly doubled to $6.9 trillion," said Frank Nothaft, chief economist at CoreLogic. "The rapid increase in home equity reflects the improvement in home prices, dwindling distressed borrowers and increased principal repayment. These are all positive factors that will provide support to both household balance sheets and the overall economy."

Nevada has the highest percentage of so-called underwater homes at 17.5 percent. Florida and Illinois follow. Texas has the highest percentage of homes with positive equity at 98 percent; that is likely because Texas' housing market did not suffer nearly as badly as the rest of the nation during the housing crash, due to stricter mortgage rules in the state.