NAHB says housing affordability is deteriorating

According to the National Association of Home Builders (NAHB) housing affordability posted a modest gain for average conditions in the first quarter of 2022.

A rise in the national median income helped offset a gradual rise in interest rates. 

But home builders are warning of deteriorating conditions as rising in mortgage rates in March and April combined with ongoing building material supply chain disruptions, labor shortages, and high inflation. The result is a continued increase in housing costs and prices.

The NAHB/Wells Fargo Housing Opportunity Index (HOI) shows that 56.9% of new and existing homes sold between the beginning of January and the end of March were affordable to families earning the U.S. median income of $90,000. 

Although this is up from the 54.2% of homes sold in the fourth quarter of 2021, current market indicators point to worsening affordability conditions.

The first quarter HOI was calculated based on the following key factors:

• An average quarterly interest rate of 3.86%, up 70 basis points from the previous quarter
• A 2022 median income of $90,000, up from last year’s $79,900.
• A national median home price of $365,000, up $5,000 from the fourth quarter of 2021 and a whopping $45,000 from the first quarter of 2021.

Keeping all other factors the same and calculating nationwide affordability conditions based on end of April mortgage rates of 5.11% instead of the first quarter average of 3.86%, the HOI would have fallen from 54.2 in the fourth quarter of 2021 to 48.7 today.

Based on where the housing market stands today, just 48.7% of homes sold in the first quarter were affordable to median-income families, the lowest affordability level recorded on the HOI since the beginning of the revised series in the first quarter of 2012.

“The first quarter reading is a backward gauge, as surging interest rates, ongoing building material supply chain constraints and labor shortages continue to raise construction costs and put upward pressure on home prices,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga.

Every quarter-point hike in mortgage rates means that 1.3 million households are priced out of the market for a nationwide median-priced home. With the Federal Reserve moving aggressively to raise short-term interest rates and reduce its holding of mortgage-backed securities to combat inflation that is running at a 40-year high, mortgage rates are expected to rise even further.

“Looking at current market conditions, affordability woes continue to mount as rising interest rates and home building material costs that are up 20% year-over-year are causing housing costs to rise much faster than wages,” said NAHB Chief Economist Robert Dietz. “The HOI falling below 50 using these real-time estimates is an indication of significant housing affordability burdens, particularly for frustrated, prospective first-time buyers. The best way to ease growing affordability challenges is for policymakers to address ongoing supply chain disruptions that will allow builders to construct more affordable homes.”