Housing affordability gets tougher in Q3

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Housing affordability gets tougher in Q3

By HBSDealer Staff - 11/06/2020

Housing affordability declined again in the third quarter despite record-low mortgage rates, the National Association of Home Builders (NAHB) reported.

According to the NAHB/ Fargo Housing Opportunity Index (HOI), 58.3% of new and existing homes sold between the beginning of July and the end of September were affordable to families earning an adjusted U.S. median income of $72,900. 

The latest HOI is down from 59.6% of homes sold in the second quarter of 2020 that were affordable to median-income earners and the lowest reading since the fourth quarter of 2018.

Limited housing supply, the high cost of materials, and supply chain constraints continue to be major catalysts for housing prices continuing to pump up.

“Though low mortgage rates and favorable demographics have helped spur demand, a lack of inventory exacerbated by supply chain issues stemming from the COVID-19 pandemic have contributed to rising home prices,” said NAHB Chairman Chuck Fowke. “Surging lumber prices also peaked more than 170% above mid-April levels in September, raising building costs. However, lumber prices are now trending lower, which is good news for prospective home buyers.”

The HOI shows that the national median home price jumped to an all-time high of $313,000 in the third quarter, surpassing the previous record-high of $300,000 set in the second quarter. 

This occurred despite the average mortgage rates fell by 29 basis points in the third quarter to a record-low of 3.05% from 3.34% in the second quarter.

“A six-month supply of homes is considered a normal supply and demand balance and this figure has been running below a four-month rate since July, putting upward pressure on home prices,” said NAHB Chief Economist Robert Dietz. “As builders look to ramp up production, the work-at-home trend is contributing to a suburban shift, meaning that buyers have additional market power to shop for affordable markets.”

Lansing-East Lansing, Mich. and Scranton-Wilkes Barre-Hazleton, Pa., were tied as the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000, the NAHB said. In Lansing-East Lansing, 89.4% of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $75,000. Likewise, 89.4% of all new homes sold in Scranton-Wilkes Barre-Hazleton were affordable to families earning the area’s median income of $66,600.

Rounding out the top five affordable major housing markets in respective order were Pittsburgh, Pa.; Harrisburg-Carlisle, Pa.; and Albany-Schenectady-Troy, N.Y.

Meanwhile, Cumberland-Md.-W.Va., was rated the nation’s most affordable smaller market, with 96.2% of homes sold in the third quarter being affordable to families earning the median income of $57,500. Smaller markets joining Cumberland at the top of the list included Wheeling, W.Va.-Ohio; Lima, Ohio; Binghamton, N.Y. and Monroe, Mich.

San Francisco-Redwood City-South San Francisco, Calif., was the nation’s least affordable major housing market. There, just 9% of the homes sold during the third quarter were affordable to families earning the area’s median income of $130,900.

Other major metros at the bottom of the affordability chart were in California. In descending order, they included Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Diego-Carlsbad; and San Jose-Sunnyvale-Santa Clara.

All five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, where 10.9% of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $75,800.

In descending order, other small markets at the lowest end of the affordability scale included Merced; Santa Cruz-Watsonville; San Rafael; and Napa.

For additional information, visit nahb.org/hoi, including tables, historic data, and details.