Taxes, insurance push costs to 31.8% of pay: Recheck DTIs

• What’s at Stake: Lenders face unconsidered borrower risks as housing costs consume growing shares of wages.
• Supporting Data: 31.8% of typical monthly wages are now consumed by average homeownership costs.
• Forward Look: Get ready for heightened scrutiny in both mortgage underwriting and servicing.
  Overview bullets generated by AI with editorial review.   

While wages outpace home price growth in much of the U.S., total housing expenses exceed historical averages, and the changes may impact borrower risk profiles.
In almost 98% of American counties, major monthly expenses for median-priced single-family properties today are ahead of typical norms, according to a third-quarter affordability report from Attom. 

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Overall, homeownership costs, on average, will consume 31.8% of monthly wages, ahead of the generally accepted 28% to 30% thresholds for payments relative to gross income that defines “housing affordability.”

Attom further determined that in over 80% of counties, housing costs for a median-priced home are now exceeding wage growth for residents. 

The new data suggests the need for heightened scrutiny in both the underwriting and servicing of mortgages in today’s market, as diverging trends may create unforeseen financial burdens on borrowers. 

“Affordability remained a challenge in the third quarter, even as some of the underlying factors moved in a favorable direction,” said Rob Barber, CEO of the real estate data provider, in a press release. 

“Home prices declined nationally and wage growth outpaced price growth in many counties, but those gains were not enough to meaningfully improve affordability across much of the country.”

What the numbers revealed

Nationally, the median home price ticked downward on both a quarterly and yearly basis, dropping by 1% and 2%, respectively, according to Attom’s report. At the same time, in 343 counties, or 59% of all jurisdictions with sufficient data, wages also grew at a greater rate than home values last quarter. 

Yet affordability still declined, signaling the significant impact that rates, taxes and insurance have on the ability to own a home today.

The unexpected rise in mortgage rates this year more than offset any savings offered by the small downturn in home prices. At the same time, the growing burden of tax and insurance costs, which make up over 8% of monthly housing expenses, is stretching some homeowners’ ability to qualify or remain current on their loans, as consumer-goods inflation takes a bite out of their wallets. 

The current decline in affordability coincides with a rise in debt-to-income ratios this year across borrower tiers, a development lenders may need to monitor should rates and inflation continue their upward trajectory.

On the servicing side, experts throughout housing research, including those at the Mortgage Bankers Association, are correlating increased delinquency rates with noticeable signs of consumer stress elsewhere. A recent report, likewise, reported a spike in calls for foreclosure legal assistance, a common harbinger of mortgage distress ahead. 

Where the most and least affordable markets are

In the third quarter, monthly housing costs required 43% of a typical resident’s income in almost 31% of counties, Attom said. 

Twelve of the top 25 least affordable markets in the third quarter were found in California, while New York accounted for six. Kings County, New York, more frequently referred to as Brooklyn, landed at the top of the list, where residents need 114% of the typical wage to pay monthly  housing costs. 

Brooklyn was followed by four California counties: Santa Cruz at 105.5%, Marin at 102.4%, Orange at 92.6% and Monterey at 91.8%.

On the other end, the most affordable highly populated markets were concentrated in Texas, led by Harris County, home to Houston, where only 20.7% of typical income was needed for median single-family home payments. Dallas County followed at 24.3%. Meanwhile, residents of Bexar County, which includes San Antonio, needed 27.2% of wages for their monthly payments.

The median-priced single-family unit across the U.S. at the end of the third quarter came in at $368,000, compared to $370,000 three months earlier and $375,000 year over year, according to Attom’s report.