Boston Housing Affordability By The Numbers: Things Are Bleak But Not Hopeless

In the post-COVID era, the lingering economic transformations remain noteworthy. The landscape of work has undergone a significant shift due to the prevalence of remote and hybrid office arrangements. This transition has had a profound impact on businesses heavily reliant on commuters, resulting in considerable challenges. Notably, cities like Boston are grappling with the potential decline in commercial property values.

The pandemic and the subsequent economic measures taken by the government have triggered a notable surge in inflation. As a result, the Federal Reserve found it imperative to elevate interest rates, reaching levels last observed in the year 2000.

Likewise, the housing market bore the brunt of the pandemic's effects. Initially, urban residents flocked to suburban areas, leading to a surge in home prices. However, this trend was disrupted as the abrupt escalation of mortgage rates led to a standstill in the home-buying market. Prospective buyers and sellers found themselves at a crossroads due to these fluctuating conditions.

Wondering about the challenges faced by potential homebuyers these days? Get ready for a reality check. The Federal Reserve Bank of Atlanta has an insightful affordability index that dives into homeownership. This index takes a deep dive into the national, metro, and county levels, assessing how much of the median household income is required to cover those monthly mortgage payments. The picture it paints is far from rosy.

Affordability isn't just about the house price; there's a bigger player in the game – interest rates. For those eyeing mortgages, these rates play a pivotal role in determining those monthly expenses. And the bottom line? Whether buyers can comfortably manage those monthly payments heavily depends on their income.

Take a peek at this example: In the Boston metropolitan statistical area (which stretches all the way from the South Shore to New Hampshire's eastern Lake Winnipesaukee), the median home price hit $580,000 in May. It's a slight uptick from the previous year, as per the freshest data from the Atlanta Fed. (Quick clarification: the median price splits the homes sold with half going for more and half for less.)

But here's the kicker: The average rate on a 30-year fixed mortgage jumped from 5.1 percent to 6.8 percent during that time. And guess what? The median monthly payment, which includes homeowners insurance, real estate taxes, and private mortgage insurance, surged by 7.3 percent, hitting over $4,290. Now, this payment gobbled up a whopping 47 percent of the region's estimated median income in May. Just to put things in perspective, that's well above the 30 percent benchmark for affordability set by the Department of Housing and Urban Development.

Curious about the real numbers behind affording a home? Let's dive in. Between 2014 and 2019, covering the median home cost in the region took around 33 percent of income. But here's the twist: since the beginning of 2022, that average has jumped to 43 percent. And there's more intriguing info straight from the Atlanta Fed index.

Boston slid into the 17th spot on the list of least affordable metros in the U.S. for May. If you exclude those nine jaw-droppingly pricey California metros and the ever-costly Honolulu, guess what? We snagged the seventh spot.

Zooming in on the Boston map, Essex County takes the crown for being the least affordable, clocking in at nearly 49 percent of median income in April. On the flip side, Plymouth County emerges as the most wallet-friendly at 40 percent.

Hold up, Providence's affordability isn't much better than Boston's. While the median home price is 25 percent lower in Little Rhody, the median income follows suit.

But the real shockers? San Francisco-Oakland-Hayward area wins the medal with buyers needing a staggering 83 percent of median income to afford the median-priced home. In the South Florida hotspot of Miami-Fort Lauderdale-West Palm Beach, it's a "mere" 54 percent.

Let's crunch some mortgage numbers. Imagine a 30-year fixed-rate mortgage at 7 percent (compared to the pre-COVID 3 percent). Naturally, you'd wonder when the Federal Reserve will swoop in to lower interest rates. According to their recent forecasts, they might start cutting borrowing costs next year. But the timing is a puzzle piece that hinges on getting inflation back to their 2 percent target.

Hold up, there's good news from Thursday's inflation report. The Labor Department unveiled that the "core" consumer price index, which excludes those unpredictable food and energy prices, inched up at an average annualized rate of 3.1 percent over the past three months. While it's more than the Fed's preference, it's less than half the rate from a year ago.

Market experts predict the central bank's lending rate, known as the federal funds rate, will likely dip to about 4 percent by the end of 2024. That's down from the current 5.25 to 5.5 percent range, as reported by Bloomberg. However, there's a twist: their forecasts factor in a possible economic slump, which could prompt the Fed to loosen credit.

Here's the consensus: economic growth could slow down to a mere 0.6 percent by next year's end, dropping from 2.1 percent in 2022. Simultaneously, the jobless rate might tick up to 4.5 percent, compared to last month's 3.5 percent.

So, good news on the home affordability front – unless you're one of the many Americans facing potential job loss. Keep those fingers crossed.