Housing affordability drops to 10-year low
Amid the backdrop of the International Builders Show in Orlando, Fla., the National Association of Home Builders (NAHB) revealed that housing affordability has fallen to a 10-year low.
The association points to supply chain bottlenecks and rising interest rates placing pressure on home prices.
According to the NAHB/Wells Housing Opportunity Index (HOI), a little more than 54% of new and existing homes sold between October and December 2021 were affordable for families earning the U.S. median income of $79,000.
The latest index is down from the 56.6% of homes sold in the third quarter of 2021. Additionally, this is the lowest level of affordability recorded since the first quarter of 2021.
“Supply-chain disruptions stemming from labor shortages to lumber to home appliances and other building materials are delaying construction times and contributing to higher home prices,” said NAHB Chairman Chuck Fowke. “Policymakers must focus on addressing these issues to help ease rising construction costs that are contributing to housing affordability headwinds.”
The latest HOI also shows that the national median home price increased to a record $360,000 in the fourth quarter, up $5,000 from the third quarter and a $40,000 spike from the first quarter.
The NAHB notes that average mortgage rates increased 21 basis points in the fourth quarter to 3.16% from 2.95% in the third quarter. In recent weeks, Mortgage rates have climbed above 3.5% and the rising trend could impact affordability even more.
“With the Federal Reserve signaling it will begin raising interest rates in March, mortgage rates are expected to further increase in the coming months, after beginning a steady rise in December,” said NAHB Chief Economist Robert Dietz. “To help ease growing affordability problems, policymakers must take steps to help builders to increase production to meet strong demand and stem the rapid climb in home prices that has taken place over the past year.”
In regard to where an affordable home can be found, Lansing-East Lansing, Mich. is the nation’s most affordable metro market, the NAHB said. Almost 91% of all new and existing homes sold in the fourth quarter of 2021 were affordable to a median family income of about $79,100.
Top five affordable major housing markets:
- Lansing-East Lansing, Mich.
- Scranton-Wilkes-Barre-Hazleton, Pa.
- Pittsburgh, Pa.
- Indianapolis-Carmel-Anderson, Ind.
- Akron, Ohio
Cumberland, Md.-W.Va. was rated the nation’s most affordable small market, with 94% of homes sold in the fourth quarter being affordable to families earning the median income of $60,800.
Top five affordable small housing markets:
- Cumberland, Md.-W.Va.
- Wheeling, W.Va.-Ohio.
- Fairbanks, Alaska
- California-Lexington Park, Md.
- Springfield, Ohio and Springfield Ill. (tied)
For the fifth straight quarter, Los Angeles-Long Beach-Glendale, Calif. remained the nation’s least affordable major housing market. There, just 7.5% of the homes sold during the fourth quarter were affordable to families earning the area’s median income of $80,000.
Top five least affordable major housing markets—all located in California:
- Los Angeles-Long Beach-Glendale
- Anaheim-Santa Ana-Irvine
- San Francisco-Redwood City-South San Francisco
- San Diego-Carlsbad
- Oxnard-Thousand Oaks-Ventura
The top five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, Calif., where 9.7% of all new and existing homes sold in the fourth quarter were affordable to families earning the area’s median income of $80,900.
Top five least affordable small housing markets:
- Salinas, Calif.
- Napa, Calif.
- San Luis Obispo-Paso Robles-Arroyo Grande, Calif.
- Santa Maria-Santa Barbara, Calif.
- Santa Cruz-Watsonville, Calif.