Affordability is the new battle cry across the U.S. as home prices continue to escalate at a rate much greater than the corresponding growth in incomes. This particular affordability issue is being driven by demand simply outstripping supply.
From a construction perspective, the U.S. continues to under-build housing. In the 12-months ending April 2018, a total 1,160,025 dwelling unit permits were issued across the U.S., ranging from efficiency apartments to mansions and everything in between. Job growth was 2,295,000 for the same period, resulting in 1.98 net new jobs per new additional dwelling unit. The equates to 1.98 new jobs per new dwelling unit, with 1.25 to 1.50 net new jobs per dwelling unit considered normal per my definition (or equilibrium in economic speak). Thus the U.S. continues to undersupply housing in aggregate nationwide, driving both home values and rents upwards, on average.
There is also another cry for affordability from individuals that want to live in specific locations despite unaffordable housing (either prices or rents). These markets are the coasts and destination markets including mountains, ski areas, lakes, rivers, beaches and other similar desired locales.
Last week I spoke in Jackson Hole, Wyoming and Key West, and Miami, Florida. Key West, for example, had a median household income of $58,494 per DataUSA. The median home value is $608,800 according to Zillow, making the typical home price 10.4 times that of housing income. For the U.S. overall, the current 12-month median price of $250,300 versus a median household income of $61,277 (preliminary 2017) yields a 4.1 multiple.
One of the attendees at the Key West event was very vocal about the lack of affordable housing, to which I commented that, from an economical perspective, just because a person wants to live there does not matter. Rather, does their skill set enable them adequate earnings to be able to live in such a sought-after market? She told me my response was flippant to which I responded it was an economic answer. Am certain there are many people driving autos that would prefer higher-end brands and models, but the economics say such vehicles are not affordable. Just like housing.
For people that desire to own a home, there are metros across the U.S. that as of March 2018 with more than 1,000 active dwelling listings priced at $100,000 or less. The following table shows the top-10 U.S. metros having the greatest number of listings priced at $100,000 or less as of March 1, 2018 as counted among the Realtor.com listing database. In addition to the number of listings, Realtor.com reported median list price. In addition to the Realtor.com data included are job growth rates for the respective Metropolitan Statistical Area for the 12-months ending April 2018.
Are these listings like high-end autos in great condition? That is unlikely. Many are probably like older autos, in need of overhauls and with some dinged fenders and in need of a paint job. Still, there are some opportunities for homebuyers in lower income ranges in many markets across the country.
Income is a function of the marketability of an individual’s skill set in the local supply and demand landscape. For those without skill sets (i.e. lacking a high school diploma or GED), the expectation for earnings is likely minimum wage. For those without a GED or equivalent, they may not even be able to obtain minimum wage.
Many workers in the hospitality industry that I visited with lived in their vans, only renting a bedroom during winter months. One person doing such, however, had saved up a 20 percent down payment for a $350,000 condo purchase this year. Thus even in high-priced markets, people willing to sacrifice and work hard are becoming homeowners in these unaffordable locales.
For those residing in or looking to relocate, there are places where you might be able to afford a home – but perhaps not a luxury sports car.