Housing affordability continues to rise
According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, as home prices and mortgage interest rates increase, housing affordability is taking a hit, as 64.5 percent of new and existing homes sold in the third quarter were affordable to families earning the U.S. median income of $64,400.
This is down from the 69.3 percent of homes sold that were affordable to median-income earners in the second quarter, and the biggest decline seen in this index since the second quarter of 2004.
“Housing affordability is being negatively affected by a ‘perfect storm’ scenario,” observed NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. “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.”
Pricing and affordability
“The decline in affordability is the result of higher mortgage rates and the more than year-long steady increase in home prices,” observed NAHB Chief Economist David Crowe. “While affordability has come down from the peak in early 2012, the index still means a family earning a median income can afford 65 percent of homes recently sold. Some of the decline in the affordability index could be the result of a loss in some more modest priced home sales as tight underwriting standards have limited the purchases by moderate income families.”
Indianapolis-Carmel, Ind., and Syracuse, N.Y. were tied as the nation’s most affordable major housing markets, and for a fourth consecutive quarter, San Francisco-San Mateo-Redwood City, Calif. held the lowest spot among major markets on the affordability chart.
The NAHB reports one bright spot, and that is that builder confidence in the 55+ housing market showed continued improvement in the third quarter of 2013 compared to the same period a year ago, pointing to the fact that affordability may be declining, but housing is in recovery mode.