New AEI Study Focuses on First Time Homebuyers

The American Enterprise Institute  (AEI), a public policy thinktank, is holding a free, half-day conference in NY today, called New York City Housing Conference

AEI Housing Center’s conference will focus on market indicators at the country, state, metro and country levels, market trends, as well as results of analyzing loan-level-detail on 92 million purchase loans.  All purchase loans acquired by Fannie Mae and Freddie Mac are in the study.  

AEI Housing Center recently released a new study – Best and Worst Metros to be a First-time Homebuyer.

The AEI Housing Center analyzed over 2.5 million FTB sales from 2013 to 2018 for the largest 50 metros based on their affordability for FTBs by using the ratio of home prices to income for each individual FTB. 

In 2018, Pittsburgh was the most affordable metro, while San Jose ranked as the least affordable one. The focus is on first-time homebuyers (FTBs) since this is group most harmed by rising home prices. Unlike repeat buyers who in part benefit from higher home prices when selling their asset, FTBs are often forced to take on greater amounts of debt to attain homeownership.

Here are several key findings from the study:

  • The prospect of becoming a FTB varied widely by metro in 2018.  Out of the largest 50 metros, Pittsburgh was the most affordable metro with a FTB affordability ratio of 2.4, while San Jose,  was the least affordable metro with a ratio of 5.3. Both metros have occupied the top and bottom rank since 2014.
  • Across the 50 metros, the median FTB affordability ratio was 3.3, meaning the median FTB spent 3.3 times household income to purchase a home.
  • The driver of worsening FTB affordability from 2013 to 2018 was that home prices increased faster than incomes in the majority of metros
  • At the most extreme, Denver’s prices for FTBs increased 59% (from $230,900 to $367,000) but incomes increased only 28% (from $65,000 to $83,000), causing the affordability ratio to jump 0.7 points.