Tuesday
July 29, 2014

‘Perfect Storm’ Dampens Housing Affordability

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‘Perfect Storm’ Dampens Housing Affordability

Housing affordability decreased in the third quarter as home prices and mortgage rates were on the rise and put housing out of reach for more families, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. 

NAHB’s index showed that 64.5 percent of new and existing homes sold between the beginning of July and end of September were affordable to families earning the nationwide median income of $64,400. That represents a drop from 69.3 percent in the second quarter, and marks the largest index drop since the second quarter of 2004. 

"Housing affordability is being negatively affected by a 'perfect storm' scenario," says NAHB Chairman Rick Judson. "With markets across the country recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots, and labor."     

While housing affordability has fallen since its peak in early 2012, NAHB Chief Economist David Crowe says that a family earning a median income can still afford 65 percent of homes recently sold. 

The National Association of REALTORS(R) recently reported that housing affordability has fallen to a five-year low as home price increases have outpaced income growth. “Expected rising mortgage rates will further lower affordability in upcoming months,” says Lawrence Yun, NAR’s chief economist. 

Most Affordable Markets

Indianapolis-Camel, Ind., and Syracuse, N.Y., tied as the most affordable major housing markets in the country. In both metros, 93.3 percent of all new and existing homes sold in the third quarter were affordable to families earning the areas’ median incomes of $65,100 and $65,800, respectively. 

Other major metros ranking high in affordability, according to the index, included: 

  • Youngstown-Warren-Boardman, Ohio-Pa.
  • Harrisburg-Carlisle, Pa.
  • Buffalo-Niagara Falls, N.Y.

Least Affordable Housing Markets

Meanwhile, the San Francisco metro area continues to be the priciest housing market in the nation for the fourth consecutive month. Only 16 percent of homes sold in the third quarter were affordable to families earning the area’s median income of $101,200, according to the index. 

Other major metros that were among the least affordable in the nation included: 

  • Los Angeles-Long Beach-Glendale, Calif.
  • Santa Ana-Anaheim-Irvine, Calif.
  • New York-White Plains-Wayne, N.Y.-N.J.
  • San Jose-Sunnyvale-Santa Clara, Calif.

Source: National Association of Home Builders

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