Local housing affordability has made its best gains in a year on the Atlanta Federal Reserve Bank’s Homeownership Tracker.

The monitor is a little different from some of the more widely used measures because it focuses on the percentage of income owners are paying for housing. The recommended percentage is 30%. That’s based on the idea owners can spend that much and still have enough left over to for his or her other needs. Things like transportation, food, and savings. It has long been accepted in academic circles and is often cited in housing affordability reports. 

However, an upgrade of the 30% rule to 40% is making the rounds because owners and renters are struggling with today’s changes.

The most common measure of housing affordability is the financial formula. It’s based on what lenders want – a 20% down payment, a 28% debt to income ratio and an acceptable credit rating.

The problem starts with the 20% downpayments. It’s not the norm in the region that NETAR monitors. In fact, it’s not the norm in many markets. The current average local downpayment is 10% or less. That triggers private mortgage insurance that tacks a couple hundred dollars to each month’s payment. And there are several lenders that offer a 3% or no downpayment for borrowers who meet other requirements. But that’s another story.

Beginning last year, the cost of ownership jumped past the 30% level in almost all local counties. At one point, Carter Co. owners were paying almost half of their income on housing. It has dropped, but it’s still above the recommended level. And it still puts current owners in a housing stressed situation, but the trend in headed in the right direction. And they have a lot better situation than renters whose share has exceeded 45% and isn’t coming down. Much of the owner gains are the result of higher average private sector wages – not lower home prices or bigger down payments.

Here’s the current percent county owners are paying for housing compared to their highs last year. Again, it is more expensive than ideal the trend is looking better.

Carter – 30.8%, down from 48.6%.

Hawkins – 30.5% down from 36%

 Sullivan 38.2% down from 42.5%

Unicoi – 33.7% down 47.3% 

Washington – 36.6% down from 42.8%

Greeneville – 33.3% down from 34.2%

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