Aug 15, 2015

Housing Trends

The Northeast Is Pricey But Not Unaffordable Everywhere

The coastal markets have always been amongst the least affordable housing markets in the country. This is especially true for the major metropolitan areas in the Northeast, where median home prices are amongst the highest in the nation. However, there is a stark difference when comparing specific locales. While urban metropolitan areas are noticeably pricier than suburban and exurban areas, there are still big cities in the Northeast that are relatively affordable to live in. Big cities like Baltimore and Philadelphia, which are within commuting distance to their more extravagant neighbors of Washington, D.C. and New York City, are much more affordable places to buy a home.

A revival in city living along with the lack of supply in Northeastern U.S. cities has helped home prices rebound in these areas following the housing bust. Major cities in the Northeast are already so built up that the scarcity of prime developable land really limits their ability to bring in additional supply to compensate for pent up demand. According to May data from the Census Bureau, just about 8% of all single-family housing starts in the U.S. took place in the Northeast. Compare that to the West region, which is also home to some of the most unaffordable housing markets in the U.S., but accounted for over 23% of all single-family construction activity in May. In the highly affordable South region, where some of the most affordable cities in the U.S. are located, single-family housing starts accounted for over 53% of single-family housing starts.

Three of the major Northeast cities, New York, Boston, and Washington, D.C., are included in the Case-Shiller 20-city index. The index scores for all three of these cities are in the top-8 which is evidence of their high prices. However, two out of the three cities are well below their record-high levels recorded during the years of the housing boom. In New York, home prices are still off of their peak levels by almost 19% while Washington, D.C. home prices are 16% down from their peak. Boston’s home prices are closest to a full recovery with the index only about 3% off of their all-time record highs. A recent analysis done by Kevin Gillen Ph.D., Chief Economist at Meyers Research, showed that average home prices in the Philadelphia region still need to rise by another 7% in order to return to their pre-bust peak levels.

The table below takes a look at the most affordable metropolitan statistical areas (MSA’s) in the Northeast. To no surprise, all the major metropolitan areas that are attracting millennials and young professionals to their urban cores are amongst the least affordable to live. Baltimore and Philadelphia ranked as the most affordable major Northeast cities while Boston, D.C. and New York were the least affordable. It is interesting to see that four out of the top-5 areas can be considered exurbs to Philadelphia. New York City is the least affordable resale market in the entire Northeast. Allentown is the most affordable new home market out of all these MSA’s while ranking third in terms of existing home affordability.

Prices are still steadily rising in most of these Northeast areas and for the U.S. overall. While there are many suburban and exurban areas near each major city in the Northeast that remain very affordable, prices in the urban core are rising much faster and becoming very unaffordable for most homebuyers in these cities. High levels of demand and limited supply will continue to put pressure on home prices and hurt affordability. Mortgage rates have been steadily rising and are currently at their highest levels since October of last year. With the likelihood of a Fed rate hike in the fall, rates will continue to trend higher which will further drag on affordability as the year goes on.

EXISTING HOME AFFORDABILITY RATION IN THE NORTHEAST
MSA Affordability Ratio
Reading, PA 72%
Vineland, NJ 72%
Allentown, PA 67%
Dover, DE 67%
Lancaster, PA 63%
Trenton, NJ 62%
Baltimore, MD 54%
Philadelphia, PA 52%
Boston, MA 47%
Washington, D.C. 45%

Kevin Gillen, Ph.D., Chief Economist
EMAIL KEVIN | KEVIN’S PROFILE

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