What Does the Shortage of Affordable Homes Mean For You? | American Funds

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By the Numbers

NOVEMBER 14, 2016

What Does the Shortage of Affordable Homes Mean For You?

Anyone looking to purchase an affordable home has to think about whether or not he or she can make the payments — and in many markets across the country, it’s getting harder to do so.

In fact, nearly one-quarter (24%) of the country’s housing markets were less affordable than their historic averages in the third quarter of 2016 according to ATTOM Data Solutions, a housing data firm. That’s the highest percentage of U.S. markets below their normal affordability level since 2009.

In certain markets, homebuyers are willing to spend more of their income on housing, and in certain markets less, depending on what is considered to be normally affordable in the area.

The recent trend is “a caution flag,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “It’s not just that markets are becoming less affordable, these markets are less affordable than their normal levels, historically. Unaffordability is a signal that home prices might be becoming overinflated.”

ATTOM bases its quarterly affordability reports on an analysis of median home prices and average local wage data from the U.S. Bureau of Labor Statistics. The reports look at the percentage of average wages needed to make monthly housing payments — including property taxes and insurance — on a median-priced home, with a 30-year fixed rate and a 3% down payment.

Across the 414 counties measured in the third-quarter study, average weekly wages declined by 0.1% vs. the same quarter a year ago, while average annual median home prices rose by 7%.

Affordable housing is a moving target. But working with a financial advisor and having a diversified portfolio of investments can help would-be homeowners achieve their goals regardless of the ups and downs of the market.

“Rising property values, in and of themselves, shouldn’t lead to the decision as to whether one should rent or buy,” said Chris Gies, senior vice president, advisor education & sales force development, at American Funds. “The way to maintain flexibility is to accumulate a nest egg via a diverse portfolio that includes actively managed equity and fixed-income securities.”



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