Buying a property in the US is at its most affordable for two years despite rising house prices. Counties with the most affordable property include several in the Midwest and some analysts describe now as a “historic time” to buy Florida property.
A report recently released on affordability in the US property market in Q1 2015 finds that affordability levels are at their lowest for two years. Homes in the US are also twice as affordable as they were in Q2 2006, the worst level over the last decade.
In their report, RealtyTrac in conjunction with Clear Capital, examined property prices in 582 US counties and compared these with wage increases in the same counties. Finally, the report looked at interest rates for mortgages in the US. The three levels of data gave the best level of affordability for two years.
In Q1 this year, the average house buyer needed 36.5 per cent of their salary compared to 37.4 per cent in Q1 2014 and 70.7 per cent in Q2 2006 when US property was at its least affordable. The survey reports that property prices in the US are currently 12 per cent below those registered in Q2 2006.
Big regional differences
The survey produces average figures and naturally there are huge differences throughout the country. RealtyTrac finds that most buyers are unable to afford any property in New York and almost all areas of California. In complete contrast, the most affordable county in the US was Hamilton in Florida where property accounts for just 5.6 per cent of a salary. Counties in Detroit, Philadelphia and Chicago metro areas also offered low ratios of property prices versus wages.
US property has become more affordable despite the rise in house prices, well ahead of increases in salaries. The RealtyTrac Q1 2015 survey reveals that property prices went up more than wages in 68 per cent of the counties surveyed. However, the drop in interest rates from 4.34 per cent in Q1 2014 to 3.77 per cent in the first three months of this year compensated for this and the combined result was more affordable homes.
Affordability key for market
Since Q1 2012, property in the US has gone up by an average of 24 per cent while wages have risen by just 7 per cent. Interest rates, however, have decreased by 5 per cent. “Affordability is the key metric in determining the overall health of a housing market,” said Alex Villacorta from Clear Capital, because being able to afford a house or not is the main obstacle for first-time buyers. He explained that this buyer sector “starts a chain reaction that allows existing home owners to sell and move thereby churning the housing market and price growth”.
Better affordability in some parts of the US has prompted some analysts to pronounce that now is the time to buy property. This sentiment is mirrored in the 2015 National Housing Pulse Survey carried out by the National Association of Realtors, which reports that 68 per cent of Americans believe that it’s a good time to buy.
The combination of low interest rates and a fast-improving economy has led realtors in South Florida one step further. One declared to RealtyTrac that this is “a historic time to buy property in Florida”.