Can You Afford It?

Though there are signs of the housing market leveling off, especially in more expensive metros, Q3 was yet another quarter marked by less affordability than the quarter that preceded it, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index.

In fact, the report finds that a modest increase in interest rates and the generally consistent uptick in home prices—the U.S. median bumped from $265,000 to $268,000, a new high—kept housing affordability at a 10-year low in the third quarter. In real numbers, that translated into an almost full-point drop in affordability. According to the report, 56.4 percent of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $71,900.

“This is down from the 57.1 percent of homes sold in the second quarter that were affordable to median-income earners and the lowest reading since mid-2008,” the report stated. “At the same time, average mortgage rates rose by a nominal 5 basis points in the third quarter to 4.72 percent from 4.67 percent in the second quarter.”

And then there is the employment angle.

“Continuing home price appreciation and rising interest rates coupled with persistent labor shortages are contributing to housing affordability concerns,” said NAHB Chairman Randy Noel. “Builders are increasingly focusing on managing home construction costs so that they do not outpace wage gains.”

NAHB Chief Economist Robert Dietz said ongoing job and economic growth do provide a solid backdrop for housing demand amid recent declines in affordability, However, he said, “housing affordability will need to stabilize to keep forward momentum from diminishing as we move into the new year.”

As for most affordable markets, Syracuse remained the most affordable major housing market in the country for the second straight quarter. There, 88.2 percent of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $74,100, the report stated.

Scranton-Wilkes Barre-Hazleton, Pa.; Indianapolis-Carmel-Anderson, Indiana; Youngstown-Warren-Boardman, Ohio-Pennsylvania; and Harrisburg-Carlisle, Pennsylvania. Rounded out the five most affordable major markets of the quarter.

Kokomo, Ind., where 93.2 percent of homes sold in the third quarter were affordable to families earning the median income of $64,100, was the country's most affordable small market. Elmira, New York; Fairbanks, Alaska; Cumberland, Maryland-West Virginia; and Springfield, Ohio, rounded out the five most affordable small metros in Q3.

On the other end of the scale, and the country, California remained out of reach to most median buyers. San Francisco was the nation’s least affordable major market in Q3, for the fourth straight quarter, the report stated. A mere 6.4 percent of the homes sold in the third quarter in San Francisco were affordable to families earning the area’s median income of $116,400. Los Angeles,-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and San Diego-Carlsbad were the other top-five least affordable major metros in Q3.

All five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Santa Cruz-Watsonville, where 6.5 percent of all new and existing homes sold were affordable to families earning the area’s median income of $81,400.

Other small markets at the lowest end of the affordability scale included Salinas; Napa; San Luis Obispo-Paso Robles-Arroyo Grande; and San Rafael, the report found.