Housing Affordability at Its Lowest in a Decade

The affordability of homes has declined to the lowest point in 10 years, according to a National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) report.  

The report blamed the slip on decreasing inventory and increasing prices and interest rates.

Randy Noel, a LaPlace, La. homebuilder and Chairman of the NAHB said, “Tight inventory conditions and rising construction costs are factors holding back housing and putting upward pressure on home prices.”

Rising construction costs are partially attributable to new tariffs on Canadian lumber. Noel explained, “Tariffs on Canadian lumber imports into the U.S. are further eroding housing affordability. Builders are struggling to manage these costs to ensure pricing does not outpace expected gains in wage growth.”

The gulf between housing prices and homebuyers’ wages is widening. Q1’s median house price of $252,000 jumped to $265,000 in Q2, now the highest quarterly median price recorded by the HOI.

Decreasing affordability is also blamable on the increase of average mortgage rates. The average mortgage rates of 4.34 percent in Q1 rose to 4.67 percent in Q2, a climb equivalent to more than 30 basis points.

The HOI said that in Q1 2018, 61.6 percent of new and existing homes purchased were affordable for families with a U.S. median income of $71,900 whereas in Q2, only 57.1 percent of such homes were affordable to those families. Also, the report pointed out that housing affordability rang in at the lowest since mid-2008.

The nation’s least-affordable markets, both major and smaller, lie on its West Coast, while its most-affordable ones are located in the nation’s East and Midwest.

The priciest homes in a major market were in San Francisco, a distinction the City by the Bay’s had for the third straight quarter. Only 5.5 percent of the homes sold here in Q2 were affordable to families earning $119,600 annually, the area’s median income.

Other California major markets in which homebuyers suffered affordability issues in descending order are Los Angeles-Long Beach-Glendale, Anaheim-Santa Ana-Irvine, San Jose-Sunnyvale-Santa Clara, and San Diego-Carlsbad.

However, on the country’s opposite side is the most affordable major market of Syracuse, New York. In that Empire State city, families having yearly earnings of $74,100, the area’s median income, found 89.1 percent of existing and new homes purchased in Q2 affordable.

Among the nation’s other most-affordable major markets were Scranton-Wilkes Barre-Hazleton, and Harrisburg-Carlisle in Pennsylvania; Indianapolis-Carmel-Anderson, Indiana; and Youngstown-Warren-Boardman, in the Ohio-Pennsylvania region.

The U.S.’s most-affordable small market was awarded to Elmira, New York, since families with median incomes of $71,000 were responsible for 97 percent of Q2 sales of existing and new homes.

The Midwestern small markets of Kokomo, Indiana; Davenport-Moline-Rock Island, Iowa-Illinois; Cumberland, in the Maryland-West Virginia region.; and Wheeling, West Virginia-Ohio, followed Elmira in housing affordability.

Besides hosting the least-affordable major markets, California is home to the least-affordable small markets, too. Families reporting an annual income of $69,100, the area’s median, found only 9.8 percent of Salinas’ new and existing homes in Q2 affordable.

Further down the affordability ladder were the Golden State’s Santa Cruz-Watsonville; Napa; San Luis Obispo-Paso Robles-Arroyo Grande; and San Rafael.

Concluded Robert Dietz, Chief Economist NAHB, “Rising household formations, along with a strong economic expansion in the second quarter that has fueled job growth, will support housing demand in the second half of 2018. However, growing trade war concerns and the expectation of higher mortgage rates are additional headwinds negatively affecting housing affordability.”