Housing affordability 101, why it’s important  

Rick Chantry 

The fact that housing affordability has been declining here in NE Tenn. and SW Va. isn’t a revelation. The local market has been on a tear for four years. Sales have absorbed inventory faster than the market was replacing it. 

NETAR President
Association Spokesperson

Economy 101 says increased demand and less supply equal higher prices. And higher home prices equal less affordable housing unless wages keep pace. They haven’t. 

According to a nationwide analysis that included Sullivan and Washington counties, local affordability has dropped to a new low. That’s not out of the norm. The analysis found that single-family homes and condos were less affordable in 547 (97%) of the 575 counties in the study.  

During the second quarter, the affordability formula also shows an average worker in Washington Co. cannot qualify to buy a median-priced home. Things are not quite to that state in Sullivan, but its affordability index has declined for 15 straight quarters, according to Attom Data Solutions. 

With that said, this is the point where some context is warranted. It’s not intended to discredit the analysis because it used a standard financing formula for housing affordability. The assumption is a 20% down payment, a 28% front-end debt to income ratio, and a good credit score. Factor in the median income and the current median home price, and you get the qualification norm. 

Another standard is the percentage of total income is spent on housing. Anything above 30% is considered “housing stressed.” 

Currently, the average for a Washington Co. median-price home is 30.2%. That’s up from 14.3% in the first quarter of 2012 – the county’s best affordability quarter. In Sullivan, the average is 21.5%, up from 8.9% during the first quarter of 2013. That shows that Sullivan is rapidly catching up to Washington in the affordability decline. 

Housing will get more affordable when inventory increases enough to put some downward pressure on prices. If wages keep up when that happens, the affordability benchmarks will be even more favorable for buyers.

None of this means there is no affordable housing on the market. There is. It’s just not enough to make the market more attractive to affordable-housing shoppers and first-time buyers. And since wages have not kept pace with home price increases, many buyers are not meeting the assumptions for the financing affordability benchmark. 

The current average down payment for a median-priced home in the Kingsport-Bristol metro area is 5.2% of the median sales price. In the Johnson City metro area, it’s 8.4%. Buyers who don’t make the 20% down payment must buy private mortgage insurance. That costs an extra 0.5% to 1% of the total loan amount to the monthly mortgage.  

There are two primary reasons affordable housing has become a hot topic.  

Decent, affordable housing fulfills a basic human need for shelter. It is also a time-tested way for individuals and families to build wealth. 

And a vibrant real estate market is important to the economic vitality of communities. Affordable homes attract and keep new residents. It supports a local workforce that can live close to their jobs. Real estate is a significant economic contributor to local economies. Locally, it accounts for about 15% of the economy. 

A healthy mix of housing – from high-end to market rate to affordable is the structure of a stable local economy. A mix of single-family homes, townhomes, and condos, senior housing simply ensures opportunities for everyone to live within their economic situation and improve their lot in life. 

NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,800+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us