You need to make $116,000 a year to afford a median-priced home in northwest Vermont, Harvard study finds


Newly built homes at Hillside in the O’Brien Farm development in South Burlington on June 22, 2020. File photo by Glenn Russell/VTDigger

To afford a home at the median price of $420,917 in northwest Vermont, an individual or family would need to earn $115,742 a year. It depends a new study by the Joint Center for Housing Studies at Harvard University.

The report found that house prices have risen significantly over the past year – and Vermont is one of the most rent-burdened states in the country. He also concluded that a recent rise in interest rates could temper the real estate frenzy.

“We are seeing a substantial increase in the median sale price,” said David Parsons, real estate agent with RE/MAX North Professionals, which primarily covers Chittenden County. “The demand is quite high.”

The Harvard report found that nationally, home prices rose a record 20.6% from March 2021 to March 2022. The northwestern Vermont counties of Chittenden, Grand Isle and Franklin saw a median sale price increase of 18.3% between May 2021 and May 2022, according to Multiple Listing Service data analyzed by Parsons.

Home prices were somewhat lower in other parts of Vermont, according to the Harvard study.

In Washington County, it was found that an individual or family would need to earn $86,195 per year to afford a home at the median price of $313,464. In Bennington County, it would take $83,484 to buy a house at the median price of $303,600, and in Rutland County $68,642 to buy a house at $249,630.

To calculate these metropolitan numbers, the report’s authors assumed a 3.5% down payment on a 30-year mortgage and a fixed interest rate of 4.98%. They also assumed that homebuyers would incur monthly debt of 31% of their income.

Disparities in home ownership between races persist nationwide. At the start of 2022, 45.3% of black households, 49.1% of Hispanic households and 59.4% of Asian households owned their own homes, the report said, compared to 74% of white households. He did not break down Vermont’s demographics.

Buying a home is especially difficult for first-time home buyers. Nationally, the typical buyer needed $27,400 to make a 7% down payment in April, an amount of money that excludes 92% of renters, whose median savings are $1,500, according to the report.

“I have the greatest sympathy for people who are just entering the market because it’s so competitive,” Parsons said.

rent charged

Harvard researchers also found that Vermont was one of the states with the hardest hit renters in 2020, the first year of the pandemic, with 45% or more of renters paying 30% or more of their income for rent and utilities.

“More and more households are spending a larger share of their housing costs on rent, and that’s affecting most states across the country,” Alexander Hermann, one of the study’s lead authors, told VTDigger. “And that certainly seems to be true in Vermont, where nearly half of renters spend this particularly large portion of their income on housing.”

Low-income households and people of color across the country continued to struggle to pay rent in the early months of this year. More than 20% of households earning less than $25,000 a year were behind on rent from December 2021 to April 2022, according to the report. More than 20% of black households and more than 15% of Hispanic and Asian households were behind on rent.

Nationally, eviction rates were nearly back to pre-pandemic levels, the report said, with March 2022 rates nearly equaling February 2020 rates.

Tenants in Vermont had one of the lowest rates of rent arrears, with only 7% of Vermont tenants in arrears, according to the report.

Strong demand

As of Thursday, the average number of days a home in northwest Vermont was on the market was 22, according to Parsons. For a condo or townhouse, it was nine days.

“It’s incredibly difficult for buyers there,” Parsons said. “Many of our buyers write you between three and seven offers before they have an offer accepted, and in many cases they waive important contingencies – things like home inspections or appraisals, just to put themselves in a position to be competitive enough in these multiple bid situations to win bids.”

The number of sales in Vermont increased by 16.2% between May 2021 and May 2022, according to Parsons.

According to the Harvard report, one of the factors contributing to rising house prices across the country has been the influx of millennials into the market after delaying their lives on their own until their twenties and in their early thirties. It revealed that on average, between 2016 and 2021, 359,000 more households per year were made up of people aged 35 to 44 than in the previous five years.

Falling unemployment rates and rising wages gave young adults the financial foundation they needed to access homeownership. As a result, according to the report, 62.3% of households aged 35-44 are now homeowners, up from 58.9% in the first quarter of 2016.

Refresh?

A surge in interest rates should slow the rapid rise in home prices nationwide, the report concluded, and the large number of apartments under construction across the country should temper rent increases.

“Interest rate increases, especially of the magnitude we’ve seen so far this year, can quickly deteriorate affordability,” Hermann said. “And that’s doubly true with the kinds of price increases we’ve seen since the start of the pandemic. Rising interest rates will put off a lot of potential buyers. »

Between rising prices and rising interest rates, the report found domestic home buying was starting to slow, citing findings that in mid-May the unadjusted purchase price index from the Mortgage Bankers Association indicated a 16% drop in mortgage applications from May 2021.

Parsons said in Chittenden County he was seeing signs of a slowing market due to rising interest rates, but he said it was still a strong seller’s market as the supply of houses is too limited for the current demand.

“For some buyers, getting mortgages, just with higher rates, is going to impact what they can afford, and I think ultimately that’s what’s going to impact in the market,” Parsons said.

In April, 1.64 million homes were under construction in the United States, the highest number since 1973, according to the report.

But it costs more to build.

If a building cost $10 million to build before the pandemic, it now costs $13 million, according to Joe Larkin, owner of Larkin Realty and who is opening an 83-unit building in South Burlington. Larkin said he doesn’t see any decline in demand for apartments in the Burlington area.

And as for that median price of $420,917?

“You can’t build a single-family home for anywhere near $410,000,” Larkin said. “When I look at the market, I don’t see any real inventory at that $400,000 level.”

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