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Which Time Zones Have the Most Affordable Housing?

Which Time Zones Have the Most Affordable Housing?
Every year when some states “spring forward” like they did this weekend, the national conversation always turns to “daylight savings time” and if we should keep that system in place.   But we thought it would be a good opportunity to focus on housing affordability in the different time zones.

What is “Affordability”?  Well Nerd Wallet calculated it by comparing median household incomes and median home prices, assuming a 20% down payment. A place with high incomes and low home prices is more affordable for buying a home than an area with low incomes and high home prices.

Each quarter, NerdWallet calculates the home affordability for 178 metropolitan areas, matching the list of metros for which the National Association of Realtors publishes median home prices. This quarter, NerdWallet sorted the metro areas by time zone, slicing the contiguous United States roughly into fourths. There were big differences in affordability of homes among time zones.

No surprise as cities in the Pacific time zone have the least-affordable housing in the country, and the Central time zone has the most-affordable housing.

Here is a great example of a least affordable area:

San Jose-Sunnyvale-Santa Clara, California – Pacific Time Zone
Median home price: $1,250,000
Median household income: $117,474
Principal and interest payment: $5,313 (54.3% of monthly income)
This is the only one of the 178 metro areas with a median house price in the seven figures. A buyer of a typical home, after making a 20% down payment, would get a mortgage of $1 million. Just the principal and interest on the mortgage would cost the typical family more than half its monthly income.

Here is an example of a most affordable area:

Most affordable: Decatur, Illinois – Central Time Zone
Median home price: $89,300
Median household income: $51,970
Principal and interest payment: $380 (8.8% of monthly income)
This central Illinois city had the lowest median house price among the 178 metro areas that the National Association of Realtors tracks. Decatur’s population declined 5.2% from 2010 to 2017, and buyers don’t seem to be in a hurry to take advantage of low house prices. Those factors make Decatur more of a buyer’s market than other metros mentioned in this article. At the end of the fourth quarter of 2018, half the homes listed for sale in Decatur had been on the market for more than 108 days. For the entire United States, the median number of days on market was 80.

Source: Nerd Wallet, WCPO Cincinnati

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +44 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower compared to the previous week.

Overview:  We had very strong economic data with ISM Services (2/3 of our economy) hitting their 4th best level in 20 years and Average Hourly Earnings beating out estimates with a YOY gain of 3.4%.  But concern over Brexit, China Trade and very weak economic data out of Europe, pushed MBS prices higher which inversely pushes mortgage rates lower.

Jobs, Jobs, Jobs: We got the Big Jobs report on Friday and while the headline Non-Farm Payroll missed, overall it was very strong.
Here is the tale of the tape:
Jobs: February Non Farm Payrolls (NFP) were much lighter than expected with a reading of 20K (not a typo) vs estimates in the 180K range. However, everyone expects that to be revised upward by 50K to 100K next time around.
January NFP were revised upward from 304K to 311K
December NFP were revised upward from 222K to 227K
The more closely watched rolling three month moving average is now 186,000 which is extremely solid.

Average Hourly Earnings YOY rose by 3.4% vs est of 3.3%
Average Hourly Earnings MOM rose by 0.4% vs est of 0.3%
The national average hourly rate rose by 11 cents and is now $27.66
The Unemployment Rate dropped from 4.0% in January to 3.8% in February, the market was expecting 3.9%.
The number of unemployed persons decreased by 300,000 to 6.2 million.
The Labor Force Participation Rate remained at 63.2%

ISM Services: Wow, the February ISM Non Manufacturing had the 4th best reading in 20 years and handily beat market expectations (59.7 vs est of 57.3). This is more important than last week’s ISM Manufacturing release as this represents more than 2/3 of our economy.

Taking it the House: January Building Permits were higher than expected (1.345M vs est of 1.289M) and New Housing Starts also beat out estimates (1.230M vs est of 1.197M).

Central Bank Palooza: The European Central Bank kept their key interest rate at 0.00% but came out with a much more dovish approach. ECB President Mario Draghi went full-dove and admitted that its forecasts were way off and revised 2019 growth expectations “substantially” lower (from 1.7% to +1.1%) and slashed all inflation forecasts with 2019 GDP at 1.1% vs their original expectations of 1.7% and inflation of 1.2% vs original “guestimates” of 1.6%.

What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.


Ralph Rossi

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