Housing affordability

In Austin home price update I shared how quickly home prices have increased in our area over the past couple of years. Prices have actually been on the rise since 2013 but not at the more recent pace. With this trend here and in many metro areas around the U.S. housing affordability is a real concern, worth paying attention to as the imbalance between housing supply and demand continues uninterrupted..

A very useful tool from the Texas Real Estate Research Center is the Texas Affordable Housing Index. Given the pace of change in our residential markets, this chart is encouraging:

For a fair look at a broad population of prospective home buyers, I asked for the index to assume that buyers put down 10% of the purchase price and spend less than 30% of income on housing costs. This is the result, comparing cities and counties across the state:

You’ll find the Austin-Round Rock MSA near the bottom of that list. Houston-The Woodlands-Sugar Land is about mid-way up the list. Dallas-Plano-Irving is a half-dozen slots above Austin. To interpret this data note that a higher number is better for affordability. A 1.0 measure in the THAI indicates that the area’s median income is adequate to purchase a median-priced home with the assumptions provided (in this case, 10% down, less than 30% of income for housing). With that in mind, the Austin MSA rating of 1.36 is an indication that the median income here remains relatively high. That’s not to discount the reality of gentrification and general cost of living issues that affect significant segments of our population, but this look at the affordability index is more optimistic than you might have expected.

An article from the Austin Business Journal (Home affordability index at lowest point since 2008) provides a point of comparison. If you’re a subscriber you should be able to access the entire article. If not, an important data point is that “Median-income households are spending 32.4% of their annual income on a median-priced home, the highest it’s been since November 2008.” The chart above indicates that the situation in the Austin area is better than that national outlook. With general price inflation changing our day-to-day lives, the effect of rising mortgage interest rates, and an array of other economic uncertainties nationally and globally, there is real cause for concern. Austin’s place in the TAHI rankings has declined in recent years, but we remain relatively affordable compared ot other parts of the country. Keep an eye on this trend.