At the national level, housing affordability declined in April compared to a year ago, according to NAR’s Housing Affordability Index. Affordability declined in April compared to March as the median family incomes declined by 1.0% while the monthly mortgage payment increased 16.1%. The effective 30-year fixed mortgage rate¹ was 3.11% this April compared to 3.37% one year ago, but the median existing-home sales price rose 19.9% from one year ago.

As of April 2021, the national and regional indices were all above 100, meaning that a family with the median income had more than the income required to afford a median-priced home. The income required to afford a mortgage, or the qualifying income, is the income needed so that mortgage payments make up 25% of family income.² The most affordable region was the Midwest, with an index value of 202.7 (median family income of $87,285, which is more than twice the qualifying income of $43,056). The least affordable region remained the West, where the index was 113.7 (median family income of $95,103 and qualifying income of $83,616). The South was the second most affordable region with an index of 166.2 (median family income of $80,801 and qualifying income of $48,624) The Northeast was the second most unaffordable region with an index of 157.9 (median family income of $100,055 with a qualifying income of $63,360).

Housing affordability³ declined from a year ago in all of the four regions. The Northeast had the biggest decline of 17.5%. The South region experienced the strongest decline in price growth, compared to a year ago, of 12.2%. The Midwest region fell by 10.3% and was followed by the West, which decreased 9.5%.

Affordability is down in all four regions from last month. The Midwest had the biggest decline of 12.0%, followed by the Northeast, which fell 10.7%. The South region fell 9.8%, followed by the West region, with the smallest decrease of 8.2%.

Nationally, mortgage rates were down 26 basis points from one year ago (one percentage point equals 100 basis points).

Compared to one year ago, the monthly mortgage payment rose to $1,184 from $1,020, an increase of 16.1%, The annual mortgage payment as a percentage of income inclined to 16.0% this April from 13.7% from a year ago due to higher home prices and a decline in median family incomes. Regionally, the West has the highest mortgage payment to income share at 22.0 % of income. Home prices in the West have reached an all-time high of $509,400. The Northeast had the second highest share at 15.8%, followed by the South with its share at 15.0%. The Midwest had the lowest mortgage payment as a percentage of income at 12.3%. Mortgage payments are not burdensome if they are no more than 25% of income.⁴

Lack of home supply is pushing home prices higher, which is having a huge impact on affordability and first-time home buyers. Incomes are coming down from recent highs, and declining incomes with higher home prices is not a good combination for a potential home buyer.

This week The Mortgage Bankers Association reported an increase in mortgage applications from a week ago. Mortgage credit availability was up 2.2% in April. New home purchase applications are down 5.9% compared to a year ago.

What does housing affordability look like in your market? View the full data release.

The Housing Affordability Index calculation assumes a 20% down payment and a 25% qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation.

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¹ Starting in May 2019, FHFA discontinued the release of several mortgage rates and only published an adjustable rate mortgage called PMMS+ based on Freddie Mac Primary Mortgage Market Survey. With these changes, NAR discontinued the release of the HAI Composite Index (based on 30-year fixed-rate and ARM) and, starting in May 2019, only releases the HAI based on a 30-year mortgage. NAR calculates the 30-year effective fixed rate based on Freddie Mac’s 30-year fixed mortgage contract rate, 30-year fixed mortgage points and fees, and a median loan value based on the NAR median price and a 20% down payment.

² The 25% mortgage payment to income share takes into consideration that a homeowner has other expenses such as property insurance, taxes, utilities, and maintenance, so that total housing expenses are no more than 30% of income. Housing costs are not burdensome if they account for no more than 30% of income.

³ Total housing costs that include mortgage payment, property taxes, maintenance, insurance, utilities are not considered burdensome of they account for no more than 30% of income.

⁴ A Home Affordability Index (HAI) value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20% more than the level of income needed pay the mortgage on a median-priced home, assuming a 20% down payment so that the monthly payment and interest will not exceed 25% of this level of income (qualifying income).

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Nearly 6 million renter households not caught up on rent need $3.4 billion in monthly rental assistance to avoid potential eviction

The eviction moratorium is slated to expire on June 30, 2021, but many renters are still struggling to pay rent, and need rental assistance of at least $3.4 billion to avoid potential eviction. There are 5.8 million renter households who were not caught up on rent as of May 2021. Nearly 60% of renter households not caught up on rent live in 1-to-4-unit properties that are typically run by mom-and-pop landlords. Nearly two thirds of renter households not caught up on rent earn less than $35,000 a month, with 54% of renters not caught up on rent being of minority (non-White only) race.

14.8% of renter households are not current on rent payment, the largest numbers in California, Florida, New York, Texas, and Georgia

There were 5.8 million renter households who were not current on their rent payment, accounting for 13.9% of the 41.9 million renter households (as of 2019 American Community Survey), based on a household level tabulation of the US Census Household Pulse Survey Week of April 28-May 10.

The largest number of renter households who were not caught up on rent as of May 2021 lived in California (900,737),  New York (562,729), Florida (499,805), Texas (415,876), and Georgia (242,522). These five states had 2.62 million renter households or 45% of the renter households who were not current on rent payment.

However, by share to renter population, the top five states with the highest fraction of renter households who are not caught up on rent were Mississippi (25.7%) , Maryland (22.8%), Louisiana (20.7%), Alaska (20.4%, and Florida (19.5%) where about 20% to 26% of renters are not caught up on rent.

52% of renters who are not caught up on rent have not worked in the past 7 days mostly for reasons beyond their control

Among renters who are not current on rent, 52% of renters 18 years old and over who were not caught up on rent had not worked at all in the past 7 days, according to the Household Pulse Survey.  The reasons respondents cited for being out of work were mainly related to factors beyond their control such as their employer going out of business, getting laid off, being furloughed, needing to stay at home to take care of a child who cannot go to school or day care, or being sick.

There are reports of workers not wanting to go to work because they are better off receiving unemployment insurance, but nationally, only 11% of workers cited “did not want to be employed at this time.”  However, a higher fraction was reported in states like West Virginia  (74%), New Mexico (41%),  and  California (25%).  

64% of renter households who are not caught up on rent earned less than $35,000 with unproportionate share of Black and Hispanic renter households

Renters who were not caught up on rent can be considered to be economically marginalized. Nearly two in three renter households who are not caught up on rent had household income below $35,000.

Nationally, 53.7% of renters who were not caught up on rent were of non-White race, which is disproportionately higher than the 22.1% share of minorities to the total population. Black Alone households make up 20.3% of the renter households in 2019 but  make up 35.5% of renters who are not caught up on rent. Hispanic households account for 19.7% of the renter households in 2019, but Hispanic renters accounted for 27.2% of renters not caught up on rent.¹

3.4 million renter households who are not caught up on rent live in 1-to-4-unit home  which are mostly owned by mom-and-pop investors

Of the 5.8 million renter households were not caught up on rent, 3.4 million renter households (58.6% of renter households not caught up on rent) live in single-family, detached, single-family attached, a building with 2 apartments, and a building with 3 to 4 apartments.

By count, the largest number of renter households who are not caught up on rent and who live in 1-to-4 unit properties are found in California (451,286), Florida (288,895), New York (281,380), Texas (217,328), and Georgia (148,855).

As a share of the renter households, the states with the highest fractions of renter households who are not caught up on rent, at over 80% shares, were Vermont (98.1%), South Dakota (93.3%), Delaware (86.6%),  New Mexico (83%), Arizona (82%), and West Virginia (81%).

Single-family rentals are mainly owned and operated by mom-and-pop investors so rental assistance for renters is important so these mom and pop small landlords don’t to under which will only lead to a decrease in the supply of rental housing. According to the 2018 Rental Housing Finance Survey of the US Census Bureau, 73% of units in properties with 1 to 4 units were managed day-today by the property owner or unpaid agent of the property owner, or the “mom-and-pop” investors. These small business owners also need to pay mortgage (if any), utilities, maintenance, taxes, and other operating costs to keep the businesses in operation.

Monthly rental assistance of $3.4 billion (low estimate) to $6 billion (high estimate)

The Emergency Rental Assistance program provided for $46.55 billion in rental assistance². However, this is just enough to pay for the back rent up through December 2020³. So, additional rental assistance is needed to help pay for upcoming months’ rent.

The table below shows that  $3.4 billion rental assistance is needed monthly to help pay half of the rent of the 5.8 million renter households not caught up on rent payment (an ‘objective’ measure). The estimate assumes that renter households at least put up half of the rent⁴ and that the rental assistance will provide for the remaining half of the rent.

The low-end estimate of $3.4 billion— which is based on an “objective” measure (households who are not caught up on rent)―yields a rental collection rate of 93% compared to the total estimated rent of $48.5 billion monthly if all renter households fully paid rent. The low-end estimate is slightly lower than the 95% collection rate reported by the National Multifamily Housing Council which is based on 11.7 million units of professionally managed apartment units across the country which captures the upper end of the market. In the monthly survey Realtors® Confidence Index Surveys, the  median collection rate among managers responding to the survey⁵ was 95% although the average (mean) collection rate was lower at 80%.

Based on the low-end  ‘objective’ estimates, the states with the largest monthly rental assistance estimates are California ($731.6 million), New York ($370 million), Florida ($336.9 million), Texas ($236.5 million),  and Georgia ($140.1 million).

The table also shows a high-end estimate of $6 billion monthly based on 10.5 million renter households who have no or little confidence to pay next month’s rent (a ‘subjective’ measure). The fraction of renter households who report they have no or little confidence to pay rent is higher, at 24.9%, compared to the fraction of renter households who are not caught up on rent. The high-end yields a rental collection rate of 88% compared to the total estimated rent of $48.5 billion monthly if all renter households fully paid rent.

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¹ Note that I am switching comparisons between renter households and renters but the result regarding the disproportionate impact should still hold because of the large difference between the population share and share of renter households who are not caught up on rent).

² U.S. Department of Treasury. The Emergency Rental Assistance Program had two components. ERA1 provides up to $25 billion under the Consolidated Appropriations Act, 2021, which was enacted on December 27, 2020, and ERA2 provides up to $21.55 billion under the American Rescue Plan Act of 2021, which was enacted on March 11, 2021. The funds are provided directly to states, U.S. territories, local governments, and (in the case of ERA1) Indian tribes. Grantees use the funds to provide assistance to eligible households through existing or newly created rental assistance programs; https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/emergency-rental-assistance-program

³ Moody’s Corp, Averting an Eviction Crisis. https://www.moodysanalytics.com/-/media/article/2021/averting-an-eviction-crisis.pdf

⁴ I estimate the median gross rent by inflating the 2019 median gross rent from the 2019 American Community Survey with the percent change in 2-bedroom rent from December 2019 through May 2021 based on state-level ApartmentList.com data.

⁵ The Realtors© Confidence Index Survey asks REALTORS® engaged in property management, “What percent of rent due from residential tenants were you able to collect in the past month?” The average percent collection rate reported by an average of 156 respondents every month since June 2020 through March 2021 was 78.5%. The median is 95.4%.

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Housing supply is one of the major challenges that the housing market has faced for the last several years. With the pandemic and favorable demographics intensifying the demand for housing even further, it may now be more imperative than ever to build more homes. In fact, there are about 680,000 fewer homes available for sale across the country compared to the average number of active listings in the last 5 years. As a result, the housing inventory shortage has pushed national home prices in April to a new record high at $342,000. If home prices continue to rise at this pace, many would-be homebuyers will be priced out of the market thus hurting homebuying activity. The good news is that housing inventory is rising with construction to pick up further in the following months as COVID-19 restrictions ease.

The National Association of REALTORS® tracks the number of building permits issued by metro area every month and identifies the top 10 markets with the most and least single-family building permits issued within the last 12 months. The purpose of this blog series is to identify where housing construction is rising and where we need to address the issue of underbuilding at the local level.

At the national level, housing starts slowed down in April after reaching the highest level since 2006 in March. Nevertheless, we are currently building 24% more homes than we typically have built in April in the last couple of decades. Thus, housing construction is trending upward with housing starts likely to reach 1.6 million for all of 2021 and rise further to 1.7 million in 2022.

Along with housing starts, building permits are also a leading indicator of housing activity for the upcoming months at the local level. Specifically, building permits provide an estimate of the number of new housing units that have been authorized by the government. Specifically, in April, 46% of metro areas are issuing more single-family building permits than the historical average.

The current analysis includes data for 262 metropolitan areas across the country. Below are the areas with the most single-family building permits issued within the last 12 months ending in April (expect large metro areas to have the highest number of single-family permits due to larger population). While 10 to 12 months is the typical time that it takes to build a single-family home, more than 14,500 new single-family homes have already been added or they will be added soon to the market in the following months.

Areas with the most single-family building permits in absolute values (during May/2020 – April/2021):

We also identified the areas with the fastest/slowest growth of single-family permits. Since last year, the year-over-year comparisons may look much higher due to the “base effect,” we compare them with the 12-month average in the last 20 years of single-family building permits.

Areas with the fastest/slowest growth of single-family building permits:

In the areas below, the number of single-family building permits is more than twice the number of single-family building permits in the last 20 years.

Hover over the map below to see how many single-family building permits were issued in the last 12 months in 262 metro areas across the country.

Employment

Meanwhile, the job market continues to recover with 560,000 new jobs added to the market in April.  While 7 million jobs are still needed to get us back to the pre-pandemic levels, layoffs are falling. Kansas, South Carolina, South Dakota, Vermont and Wyoming are reporting fewer layoffs compared to pre-pandemic. As more people return to the workplace, the demand for housing is more likely to increase as Americans set their sights on homeownership.  This implies that the housing supply shortage may be aggravated even further in the following months due to strong demand.
In a balanced market, a single-family permit is issued for every two new jobs. This is the ratio for the Houston metro area. Specifically, during the last 12 months, 52,090 single-family permits were issued while the local economy added 120,900 new jobs. However, that’s not the case for Orlando area. In this area, 16,340 single-family permits were issued compared to 97,500 new jobs in the last 12 months. Overall, a single-family permit is issued for every 5 jobs in the top 10 areas with the most single-family permits showing that constructions should speed up even more.

Hover over the map to compare the number of single-family permits and new jobs that were created in the last 12 months in the following areas. The darker the color, the larger the housing shortage.

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“The job market continues to make progress with 551,000 net new additions in May. Another 7 million jobs are still needed to get us back to pre-pandemic conditions. Construction jobs got a boost of 4,400 from homebuilding but were lower by 2,500 for residential general contractors. More lumber is needed but there were 1,100 fewer workers in the logging industry. In commercial real estate, there were 500 more jobs in construction of buildings but a reduction of 16,800 of general contractors. For better or worse, there are a record-high number of REALTOR® members at over 1.5 million as of May, as more newcomers are giving the career a try in a hot and fiercely competitive industry.

Though the job market is not fully back to normal, total production in the country is already at 100% compared to pre-pandemic levels. Worker productivity has risen, and companies want to hire more workers. There are 8 million job openings currently, which is even higher than in the months before the pandemic when 7 million “help wanted” signs were posted. At the state level, Utah and Idaho have more jobs now compared to pre-pandemic. Montana and South Dakota look to join that rank in a month or two. By the end of the year, around 30 states should be in positive territory.”

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Secondary cities are seeing a modest increase in office occupancy in the first quarter of 2021. These secondary metro areas have less expensive office rent compared to nearby major markets. Net domestic migration has also driven the demand for office space by information technology, biosciences/medical/health care, and finance companies. Get more data and analysis at Commercial Market Insights Report and Commercial Real Estate Metro Market Reports.

Office occupancy declined in 2021 Q1 but some secondary markets bucked the decline

Office occupancy continues to shrink in 84% of 89¹ metros, including in the gateway cities of Boston, Chicago, New York City, Washington DC, Los Angeles, and San Francisco.² However, office occupancy rose in a few secondary/tertiary markets in the first quarter of 2021, with a total positive absorption of 1.1 million. In the West region, office occupancy increased in San Mateo County, San Diego, Sacramento, and Tucson. In the South region, office occupancy increased in Tulsa, Suburban Maryland, Fredericksburg, and Fort Myers/Naples. In the Northeast region, office occupancy increased in Brooklyn, Buffalo, and Syracuse.³

While the 1.1 million positive net absorption in these secondary/tertiary markets is a drop in the bucket compared to the 41 million square feet of lost occupancy in 2021 Q1 (and 138.4 million square feet since 2020 Q2), the increase in occupancy in secondary/tertiary markets presages is an indicator of the resiliency of smaller markets which have cheaper office rent and more affordable homes which have resulted in net domestic in-migration. Companies such as Apple are moving to less expensive cities.

Cheaper office rents in secondary/tertiary cities

The relatively low rent in secondary/tertiary cities is incentivizing more companies to locate in these areas. Of course, not every company will relocate to the secondary areas, but companies that provide health/medical, financial, and legal services, or other transactional services to the rising population in those secondary/tertiary areas will be the main drivers of demand in these areas.

For example, the office asking rent in San Francisco is $74 /square foot. Move further south to Los Angeles and the rent falls to $45/square foot, or in San Diego where the rent falls is slightly lower at $41/square foot . Or move eastward to Sacramento and office rent falls to $25/square feet. Apple just leased an office in San Diego in the first quarter where it will create 5,000 jobs.⁴

In New York City-Midtown, the asking rent is $71/square foot, but go up to Buffalo, Syracuse, and Rochester and the office rent falls to just about $20 per square foot.

Net migration in secondary/tertiary cities

The net in-migration in tertiary/suburban areas means a demand for real estate services, health care/medical care (hospitals , urgent care, dental offices), financial services, legal services, and other professional and administrative services.

During the period April 1, 2010- July 1, 2020, Lee County experienced the largest net domestic migration among Florida’s counties, with 144,482 people moving into the area. California lost 1.1 million people, 70% from Los Angeles County, as well as Santa Clara, Orange, San Diego, and San Francisco. However, some secondary/tertiary areas had a net in-migration like Riverside (149,712) and Sacramento County (17,924). Oklahoma experienced positive net in-migration of 41,279 during the decade, some of whom went to Tulsa (5,681).

Use this data visualization to check out migration trends by county:

Markets with net increase in office occupancy in 2021 Q1

Here are the cities/areas that saw an increase office occupancy in the first quarter of 2021. Technology, finance, biosciences/medical/health care, and government services drove the demand for office space in these areas:5

San Mateo

The largest increase in occupancy was in San Mateo County where leasing activity is being propped up by the demand from life science companies setting up in the area (Arcus Biosciences, Vaxcyte, and Plexxion). Rents in San Mateo, which is 19 miles from San Francisco, a bit cheaper, at $71/sq.ft. compared to $73/sq.ft. in San Francisco.

San Diego

Office asking rents are much cheaper in San Diego, at $41/sq.ft. Apple just put up an office In the San Diego area as well as life sciences/medical companies (Alphatec Spine, AnaptysBio, Dexcom) that drove leasing activity in 2021 Q1.

Sacramento

Office rents are just a third of the rent in San Francisco, at $ 25/sq.ft.  A health care company providing managed care (Centene) accounted for most of the leasing volume. The demand for health care is a result of the growth in Sacramento’s population in part from the net domestic migration[6] during the period 2010-2020, with a net inflow of 17,924 people.

Tucson

The bulk of the increase in office occupancy was from TMC Healthcare, which runs the Tucson Medical Center.  Pima County had a net positive domestic migration of 35,533 during the period 2010-2020, and with a rising population comes the demand for health care. Tucson’s office rent is $20/sq.ft., slightly cheaper than Phoenix’s $27/sq.ft.

Tulsa

One of the largest new leases was signed by the General Services Administration signed in the third quarter of 20201. Its economy has diversified from energy into aviation, electronics manufacturing, and information technology services. Tulsa had a net domestic migration of 5,681 people during 2010-2020. Rent in Tulsa is one of the cheapest, at about $16/sq.ft. compared to Oklahoma City’s $20.sq.ft.

Fort Myers/Naples

Ameriprise Financial and the Lee County government accounted for the leasing activity in the first quarter of 2021. Ameriprise Financial provides financial planning products and services, including wealth management, asset management, insurance, annuities, and estate planning, catering to the needs of Florida’s seniors and retirees moving into the area.  Lee County had a net domestic migration of 144,482 people during 2010-2020.

Suburban Maryland

In the suburban Maryland market, a big lease came from Industrious, a provider of flexible workspace, an indication that flexible workspace solutions are anticipated to increase in the post-pandemic environment.

Fredericksburg

The area benefited from the demand from Defense Department contractors near Quantico Marine Corps base and the FBI Academy. Office rent in Fredericksburg is just at 24/sq.ft., less than half the office rent in Washington DC of $57/sq.ft. and slightly cheaper than in Northern Virginia of $34/sq. ft. Fredericksburg City had a net domestic migration of 1,669 people during 2010-2020.

Binghamton

In the Binghamton market, finance and IT service companies drove the demand for office space in 2020 (e.g., Progressive Insurance, BlueStorm Technologies, D&R Solutions). Office rent in Binghamton is $13/sq.ft.

Syracuse

The educational , medical , and aerospace industries have driven the demand for office space in Syracuse. The lease transactions in 2020 Q4 involved a finance company (M&T Bank, Morgan Stanley Smith Barney), IT company (ProQuest), an engineering consulting company (Anchor QEA),  law firm (Costello Cooney and Fearon), and a convenience store company (Speedway, LLC).

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¹ Metro areas or parts of metro areas as reported by Cushman and Wakefield

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