While housing prices are on the rise across the country, by historical standards they are still within reach for the average American homeowner – at least in most areas of the U.S.
According to a new report by the Joint Center for Housing Studies (JCHS) of Harvard University on the state of the nation’s housing market, low interest rates and higher incomes have kept home prices “relatively affordable” for most Americans.
In fact, the study found that the monthly payment for the median single-family home purchased last year with a 30-year loan and 2.5% down payment was actually below the average seen between 1987 and 2016.
However, in certain large metropolitan areas, homeownership remains “far out of reach for the typical household.”
Among those ultra-high cost markets are a slew of towns and cities on the coast of California, including Los Angeles, where only 11% of individuals making the city’s median income could afford the average monthly mortgage payments.
Also crunched by excessive prices are residents in parts of New York, including Long Island and Manhattan, where less than 24% of people earning the median income could afford average mortgage payments. Some cities in southwest Oregon are experiencing similar conditions, in addition to parts of southwest Florida.
The median home price in the country overall rose from $237,387 in 2016 to $238,800 in 2017, according to Harvard’s JCHS. As interest rates rise, monthly payments on homes will rise in tandem – and could increase by more than $140 this year.
Home prices are now higher than they were at the peak of the housing boom in nearly 60% of the country’s largest markets. The National Association of Realtors and Freddie Mac estimate that median price growth will accelerate by 3.5% in 2018, and in some cases will continue to rise faster than income gains over the coming years.
Interest rates, however, have been at historical lows.
Constraining the housing market right now is a mix of factors, including a shortage of construction workers, rising costs of raw materials, and increased regulatory burdens for developers. All of these have led to an increase in prices, which has made it difficult for first-time buyers to enter the market.
However, Harvard’s study found that the homeownership rate has stabilized, up from a 50-year low of 62.9% in the second quarter of 2016. As millennials reach their late 20s and early 30s, they will likely help boost household growth.