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Least affordable: L.A. beats S.F.

California continues to dominate when it comes to the least affordable U.S. housing markets.

BY Andy Carlo

No – the headline isn’t a prediction for the upcoming MLB season. But a rival California metropolis has overtaken San Francisco as the least affordable major housing market in the country.

Los Angeles is now the least affordable U.S. market, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI).

San Francisco had held this distinction for the past two years. But that all changed in the fourth quarter of 2019.

Los-Angeles-Long-Beach-Glendale, Calif., assumed the top spot as the nation’s “least affordable major housing market.” Just 11.3% of the homes sold in the market during the fourth quarter were affordable to families earning the area’s median income of $73,100, the NAHB reported.

San Francisco-Redwood City-South San Francisco, Calif., which stood as the nation’s least affordable major housing market for the past eight consecutive quarters, fell to the second-least-affordable position.

Overall, 63.2% of new and existing homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $75,500. This is virtually unchanged from the 63.6% of homes sold that were affordable to median-income earners in the third quarter.

“While builder confidence remains strong, they continue to deal with shortages of lots and labor, inefficient zoning requirements, and density and growth restrictions in many markets that are driving up housing costs and hurting affordability,” said NAHB Chairman Dean Mon, a home builder and developer from Shrewsbury, N.J.

NAHB Chairman Dean Mon.

Mortgage rates and home prices have remained relatively stable over the past two quarters, which is why affordability held steady, the NABH said.

The national median home price was $279,000 in the fourth quarter, pretty much unchanged from $280,000 in the third quarter of 2019. And the average 30-year mortgage rates stood at 3.78% in the fourth quarter of 2019 compared to 3.73% in the third quarter.

At the same time, the pipeline for those wanting housing is solid.

“Growing household formations, ongoing job creation and rising wage growth are fueling housing demand,” said NAHB Chief Economist Robert Dietz. “But a record-low resale inventory, coupled with underbuilding as builders deal with supply-side constraints, continue to put upward pressure on home prices even as interest rates remain at low levels.”

Indianapolis-Carmel-Anderson, Ind. was rated the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. There, 91.5% percent of all new and existing homes sold in the fourth quarter were affordable to families earning the area’s median income of $79,900. Also, Cumberland-Md.-W.Va. was rated the nation’s most affordable smaller market, with 96.7 percent of homes sold in the fourth quarter being affordable to families earning the median income of $59,300.

Rounding out the top five affordable major housing markets in respective order were Scranton-Wilkes Barre-Hazleton, Pa.; Syracuse, N.Y.; Harrisburg-Carlisle, Pa.; and Youngstown-Warren-Boardman, Ohio-Pa.

Smaller markets joining Cumberland at the top of the list included Kokomo, Ind.; Fairbanks, Alaska (tied for second); Davenport-Moline-Rock Island, Iowa-Ill.; and Springfield, Ohio.

The price of housing continues to climb in Los Angeles.

California has plenty of other major metros at the bottom of the affordability chart. In descending order, they included 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 11.8% of all new and existing homes sold were affordable to families earning the area’s median income of $74,100.

In descending order, other small markets at the lowest end of the affordability scale included San Luis Obispo-Paso Robles-Arroyo Grande; Santa Cruz-Watsonville; Napa; and Santa Rosa.

The NAHB/Wells Fargo Housing Opportunity Index (HOI) is a measure of the percentage of homes sold in a given area that are affordable to families earning the area’s median income during a specific quarter. Prices of new and existing homes sold are collected from actual court records by Core Logic, a data and analytics company.

The report also incorporates the use of Freddie Mac’s 30-year fixed effective interest rates series, following the discontinuation in mid-2019 of the FHFA series previously used in HOI calculations. National and metropolitan area HOI numbers were revised back to the first quarter of 2012 using Freddie Mac’s interest rate series, according to the NAHB.

 

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