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Where in America is Affordable Entry-Level Housing Shrinking? Where is it Growing? LendingTree Teams with AEI to Research Affordability Issues

As home prices continue to rise, many families may find their ability to afford a home diminished. This is especially true of families who are looking to purchase an entry-level home, as they may not have the income necessary to afford their purchase. Fortunately, the American Enterprise Institute (AEI) Housing Center has created a helpful index that illustrates where these types of buyers will have the easiest time affording a home.

AEI’s “Carpenter Index,” uses the average income of households headed by carpenters to determine which metros are most affordable for average American families. Specifically, AEI takes 150% of a carpenter’s average wage in a given metro and uses that to approximate the income of a typical household in the area. They do this because 150% of a carpenter’s average wage would be approximately equal to the total wages earned in a household with two wage earners.

Since homebuyers are generally advised not to spend more than three times their yearly income on a home, AEI then multiples the wage they calculated by three to determine an affordable home price for an average household. 

After they calculate how expensive an affordable home would be, AEI crafts their index by looking at the share of entry-level homes in a metro that are affordable to a carpenter-led household. An index score of 100% indicates that 100% of entry-level houses in an area are affordable to the average household, while a score of 0% indicates that no entry-level houses are affordable to the average household. 

By teaming with AEI, LendingTree, the nation’s leading online loan marketplace, has been able to rank America’s 100 largest metros by the growth rate in their Carpenter Index. In other words, we were able to look at the rate at which homes have become more, and less, affordable since 2012.

Key findings

  • Most metros have seen their index score fall since 2012. The average growth rate in the Carpenter Index across the nation’s 100 largest metros is -23.1%. Meaning that in 2012, the average carpenter household could afford 81% of all entry-level homes, but by 2018 this had dropped to 65%. In other words, entry-level homes are becoming increasingly unaffordable for the average U.S. household in many of the nation’s housing markets.
  • Home prices have increased in every single metro since 2012, but growth is slower in metros with the fastest growing Carpenter Indexes. For example, home-price growth in the five metros with the most growth in their Carpenter Index averages 18.5%. In contrast, the average home-price growth in the five metros with the lowest Carpenter Index growth is 58.1%.
  • Wages for carpenters haven’t grown as fast home prices in most metros. Nonetheless, wage growth does tend to be higher in metros with higher Carpenter Index growth. Wage growth for carpenters in the five metros with the largest Carpenter Index growth averaged to 10% over the past six years, however, that number is -1.6% in the five metros with the lowest Carpenter Index growth rates.
  • Out of the nation’s largest metros, San Diego and San Francisco have the worst six-year Carpenter Index growth rates at -82.7% and -77.5%, respectively. As a result, only 7% of entry-level homes are affordable in San Diego, while 12% are affordable in San Francisco. 
  • Half of the areas with the worst growth rates in their Carpenter Indexes (including San Diego and San Francisco) are in California. The tech industry’s growing presence in California could be causing workers who aren’t employed in higher-paying tech careers to struggle financially.
  • While many metros in California have seen their home affordability plummet in recent years, a few metros in smaller states have seen similar declines. For example, Provo, Utah, has seen a growth rate of –76.3% since 2012 — the third worst in our study. Similarly, Boise, Idaho, has seen a growth rate of -64.5%, meaning that it has the tenth worst growth rate in our study.
  • Some metros are seeing improvements in housing affordability. Tulsa, Okla., Charleston, S.C., and Philadelphia have seen growth rates in their Carpenter Index scores of 38.9%, 24.3% and 18.3%, respectively, since 2012. As a result, 100% of entry-level homes are now affordable in Tulsa and Philadelphia, while 82% are affordable in Charleston.
  • Even if their indexes haven’t grown since 2012, many metros are still affordable to the average household. Despite seeing no growth over the past six years, multiple metro areas such as Chicago, Detroit and St. Louis still have Index scores of 100%.

Metros with the highest growth rate in their Carpenter Index

1. Tulsa, Okla.

  • Growth rate in the Carpenter Index: 38.9%
  • Carpenter Index 2012: 72%
  • Carpenter Index 2018: 100%
  • Entry-level home-price growth (2012 to 2018): 14.6% 
  • Carpenter wage growth (2012 to 2018): 3.3%

2. Charleston, S.C.

  • Growth rate in the Carpenter Index: 24.3%
  • Carpenter Index 2012: 65%
  • Carpenter Index 2018: 81%
  • Entry-level home-price growth (2012 to 2018): 37.3%
  • Carpenter wage growth (2012 to 2018): 17.5%

3. Philadelphia

  • Growth rate in the Carpenter Index: 18.3%
  • Carpenter Index 2012: 85%
  • Carpenter Index 2018: 100%
  • Entry-level home-price growth (2012 to 2018): 6.2%
  • Carpenter wage growth (2012 to 2018): 7.1%

4. El Paso, Texas

  • Growth rate in the Carpenter Index: 13.4%
  • Carpenter Index 2012: 56%
  • Carpenter Index 2018: 64%
  • Entry-level home-price growth (2012 to 2018): 18.7%
  • Carpenter wage growth (2012 to 2018): 16.9%

5. Columbia, S.C.

  • Growth rate in the Carpenter Index: 13.3%
  • Carpenter Index 2012: 88%
  • Carpenter Index 2018: 100%
  • Entry-level home-price growth (2012 to 2018): 15.7%
  • Carpenter wage growth (2012 to 2018): 5.4%

Metros with the lowest growth rate in their Carpenter Index

1. San Diego

  • Growth rate in the Carpenter Index: -82.7%
  • Carpenter Index 2012: 38%
  • Carpenter Index 2018: 7%
  • Home-price growth (2012 to 2018): 46.3%
  • Carpenter wage growth (2012 to 2018): -10.7%

2. San Francisco

  • Growth rate in the Carpenter Index: -77.5%
  • Carpenter Index 2012: 52%
  • Carpenter Index 2018: 12%
  • Home-price growth (2012 to 2018): 43.5%
  • Carpenter wage growth (2012 to 2018): -10.2%

3. Provo, Utah

  • Growth rate in the Carpenter Index: -76.3%
  • Carpenter Index 2012: 51%
  • Carpenter Index 2018: 12%
  • Home-price growth (2012 to 2018): 56.5%
  • Carpenter wage growth (2012 to 2018): 8.4%

4. Portland, Ore.

  • Growth rate in the Carpenter Index: -74.5%
  • Carpenter Index 2012: 68%
  • Carpenter Index 2018: 17%
  • Home-price growth (2012 to 2018): 71.2%
  • Carpenter wage growth (2012 to 2018): -3.3%

5. Sacramento, Calif.

  • Growth rate in the Carpenter Index: -74.3%
  • Carpenter Index 2012: 84%
  • Carpenter Index 2018: 21%
  • Home-price growth (2012 to 2018): 72.9%
  • Carpenter wage growth (2012 to 2018): 7.7%

 

 

Methodology

Data on carpenter wages comes from 2018 U.S. Bureau of Labor Statistics data. All other data is supplied by AEI. 

To calculate the growth rate in the Carpenter Index, and home-price growth and wage growth for carpenters, we subtracted the 2018 value from the 2012 value then divided that number by the 2012 value. 

LendingTree research analyst Jacob Channel contributed to this report.

 

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