MReport September 2022

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52 | M REPORT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Location, Location, Location: In Search of Affordability An economist for First American digs into re- search on where the average-earning American can still find affordable housing. A new article by Ksenia Potapov, an Economist for First American Financial Corpora- tion, says that in a still red- hot market, there are bargains to be found at every level of housing—you just may not be searching in the right city. According to Potapov, afford- ability is declining in light of double-digit house-price apprecia- tion and inventory shortages. At the same time, the average 30-year, fixed-rate mortgage increased from 3% in April 2021 to 5% in April 2022. As a result, the median U.S. renter, who can also be consid- ered the median potential first- time home buyer, could afford 35% of the homes for sale nationally in April 2022, down from 54% a year earlier. Still, more and more millen- nials are aging into their prime homebuying years creating a new wave of demand. "Many potential first-time home buyers have pulled back from the market amid the deterioration in affordability, but they can still find pockets of affordable homes," Potapov wrote. In particular, Potapov cited five cities as the most affordable for homeseekers assuming they earn the median annual wage, with the current mortgage rate, and a 5% down payment. They are: • Buffalo, New York (78% of homes considered affordable) • Pittsburgh (70%) • Oklahoma City (62%) • Detroit (61%) • Cincinnati (60%) "Rapid nominal house price appreciation combined with ris- ing mortgage rates drove down affordability year over year in all of the top 50 U.S. markets," Potapov wrote. "Not surprisingly, cities where first-time home buyer affordability declined the most over the past year were typically ones where house prices increased most rapidly. These markets include Phoenix, where only 16% of homes were affordable to the median renter, Raleigh, North Carolina (27%), and Providence, Rhode Island (20%). So, what's the outlook for first- time home buyers? "Since April, mortgage rates have trended even higher, further reducing house-buying power and dampening demand," Potapov concluded. "As the housing market cools, house price growth is likely to moderate as potential buyers pull back from the market, allowing supply and demand to rebalance. But, in the interim, cities such as Buffalo, New York, Pittsburgh, Oklahoma City, and Detroit provide renters the great- est opportunity to purchase a home." National Rents Remain at Historic Highs Across Suburbs, Urban Areas Rent is growing faster in urban areas than in suburbia, reflecting a reversal of the earlier pan- demic-induced trend. Reports indicate a shift to- ward a more sustainable balance of rental supply and demand, while national rents reached a new high for the 17th month in a row in July. A ccording to Realtor. com's latest Monthly Rental Report, the rental price advan- tage of living in the suburbs vs. urban areas has shrunk by 52.9% compared to three years ago, driven by migration away from expensive city centers dur- ing the pandemic. As the U.S. median rental price hit its latest all-time high in July at $1,879, a new survey from Avail—a branch of—found that moving to a new rental has been costlier for renters, but there may be market cooling on the horizon as landlords adjust to renter budgets impacted by inflation. "Whether in a downtown area or suburb, staying put or making a change, renters are stuck between a rock and a hard place when it comes to affordability. Compared to three years ago when rental price premiums were typically concentrated in urban hubs, rent- ing is now nearly as expensive in the suburbs, where the rise in remote work has driven a surge in demand," Chief Economist Danielle Hale said. "At the same time, the days of smaller premiums for downtown rentals are numbered, as a return to in-office work and city life is sparking a relative uptick in urban rent growth. Put simply, renters are feeling it everywhere, but there may be some relief ahead. Survey findings suggest that landlords are adjusting their approaches to rent- ers' tightening budgets, while July data shows rent growth is leveling off at a relatively cooler pace than in 2021." National rents remain histori- cally high, across both urban and suburban areas National rents reached a new high for the 17th month in a row in July, even as rent growth further moderated. So far this year, annual rent gains have been consistently getting smaller month to month, indicating a shift toward a more sustainable balance of rental supply and demand. On the one hand, this offers encour- aging signs of relief, with more on the horizon as builders pick up construction of apartments. On the other hand, renters continued to grapple with affordability chal- lenges in July, driven by still-low vacancy rates that kept rents high and inflation (8.5%) that outpaced

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