(Bloomberg)—Here’s why the U.S. housing market is cooling: Prices are just too high.
Starter homes are now more costly to purchase than at any time since 2008, when the last boom came to a crashing halt. In the second quarter, first-time buyers needed almost 23 percent of their income to afford a typical entry-level home, up from 21 percent a year earlier, according to an analysis by the National Association of Realtors.
The property market, after years of price gains that outpaced income growth, is showing signs of slowing as sales decline. The affordability crunch is especially severe at the low end of the market and in hot areas where supplies are tightest and values have risen most. A jump in mortgage rates this year only made it worse.
“When prices go up at the entry level, that’s where the affordability issue is most acute,” Charles Dougherty, a Wells Fargo & Co. economist, said in a phone interview. “People are hesitant to stretch the amount they’re willing to pay.”
The most expensive U.S. markets include San Francisco and New York, where the median household needed about 65 percent of its income to buy a home in the second quarter, according to an analysis from Trulia. The share was 59 percent in Los Angeles and 55 percent in Miami.
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