Housing affordability in 2021 fell year-over-year, as house-buying power was unable to keep up with house price growth, according to First American economist Ksenia Potapov.
“The decline in affordability was broad based, as affordability fell in most major markets across the U.S., yet some markets remain more affordable than others for potential first-time homebuyers,” Potapov said in a release.
She defines affordability for first-time homebuyers as the share of homes for sale that are within the median renter’s house-buying power. That power effects the supply of affordable homes in an area.
“The pandemic has untethered many workers from their offices, providing some renters the opportunity to pursue homeownership in cities that may be more affordable,” Potapov said. “Where one lives today is less correlated with where they work, and one study suggests that even once the pandemic wanes, 20 percent of full workdays will be completed from home. Consequently, the widespread acceptance of remote work has triggered greater interest in relocating to less expensive markets.”
For example, in the third quarter of 2021, the median renter in Los Angeles whose household made $59,000 had $406,000 of house-buying power. Such a buyer could afford only 5 percent of homes for sale in L.A.
“The draw of greater affordability elsewhere may be one reason why some have left Los Angeles over the last five years,” Potapov said. “According to the American Enterprise Institute’s Housing Arbitrage Index, the top destinations for people leaving Los Angeles between January 2018 and April 2021 were Riverside, Calif., (an outer suburb of Los Angeles), Phoenix, Las Vegas, and Dallas.”
In Dallas, that Los Angeles renter with $406,000 of house-buying power could afford 63 percent of the homes for sale.
Potential first-time homebuyers leveraging house-buying power in more affordable markets could also buy larger homes with more amenities, Potapov added.
“The pandemic and the ability to work from home have prompted many people to seek more space, as their home is now also their office, their gym, and their daycare center. If they can’t afford a home that fits their needs in their own market, one solution is to move to a market where they can,” she said. “In the coming years, many workers may leverage their ability to work remotely and their house-buying power to become homeowners in more affordable markets.”