The U.S. housing recovery has become a victim of its own success.
Since bottoming out in first-quarter 2012, median home-sale prices nationwide have increased 54 percent. Although that may seem like good news at first blush, it’s not-so-good news when compared to the change in average weekly wages in the same time period — up just 10 percent.
The disconnect between home prices and incomes is even more extreme in some high-flying markets such as Contra Costa County, California, in what is known as the East Bay just outside of San Francisco. Contra Costa median home prices have skyrocketed 128 percent, to $535,000 in second-quarter 2016, since bottoming out in first-quarter 2012, but average wages have only increased 3 percent in the same time period.
A housing-market recovery far outperforming the broader economic recovery is pushing more markets over the affordability cliff, despite perpetually falling interest rates acting as a catcher in the rye, trying to hold back more markets from going over the brink. The Second-Quarter 2016 Home Affordability Index — compiled by ATTOM Data Solutions (formerly RealtyTrac) — shows that 74 out of 417 counties analyzed (18 percent) were less affordable than their historic norms in the second quarter — up from just 5 percent of markets being less affordable in the previous quarter.
Some of those markets include the aforementioned Contra Costa County, along with Brooklyn, New York (Kings County) and counties in the following metro areas: Denver, Austin, Portland, Washington and Dallas. Contra Costa County is the least affordable that it has been since first-quarter 2008. Back then, the answer to rapidly inflating home prices and deteriorating affordability was — as has been documented ad nauseam — creative-but-risky loan products that gave the illusion of affordability.
There is no indication in the data or elsewhere that those creative-but-risky loans have returned. But home sales nationwide are still strong, reaching a nine-year high in the first five months of 2016, compared to the same period in previous years, according to the sales-deed data. Those strong home sales are evident even in high-priced markets such as Contra Costa County, where home sales are down a slight 3 percent from a year ago, but still up compared to 2014.
Somehow borrowers even in these high-priced, unaffordable markets are still buying homes in large numbers. If they are not doing it with exotic loan products, how are they doing it? At least one way is through what ATTOM has dubbed “shared homeownership.”
Shared homeownership is this decade’s answer to the emerging affordability constraints. The increase in shared homeownership is evident in the rising number of multiple, non-married buyers listed on sales deeds collected by ATTOM. Shared homeownership as a percentage of total sales has increased steadily in the past year, hitting a new high of 15.8 percent nationwide in May 2016 — up from 9.9 percent in May 2015.
With a few exceptions, the highest rates of shared homeownership are in the highest-priced, least-affordable markets. Topping that list is San Jose, California, where 44 percent of home sales in May 2016 went to shared home- buyers, and the median home sales price was $804,500. More than one-third of home sales were to shared buyers in San Francisco (median price of $1.1 million) and Flushing, New York (median price $685,000).
California real estate broker David Dufresne said in an interview with RealtyTrac’s Housing News Report this past December that he used what he called an “old school” real estate tool, the equity-share agreement, to facilitate the growing trend in shared homeownership that he was observing. Dufresne said the most common form of shared homeownership he worked with involved parents helping their millennial children buy a home.
“The cost of housing is so high that a child can no longer purchase,” Dufresne, owner of Solutions4RealEstate in Contra Costa County, said. Dufresne added that he entered an equity-share agreement himself with his millennial daughter to buy a home in Portland — where 24.5 percent of home sales in May involved shared homeownership, up from just 10.9 percent a year ago, according to the ATTOM’s analysis. “This will be the new fad,” Dufresne said.