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Lack of Inventory, Higher Prices Push Housing Affordability Near Two-Year Low

Photo: Wiktor Karkocha / Unsplash Photo: Wiktor Karkocha / Unsplash

In all, 58.3% of new and existing homes sold between the beginning of July and end of September were affordable to families earning an adjusted U.S. median income of $72,900.

WASHINGTON, D.C. November 16, 2020 (NAHB) — Record-low mortgage rates were not enough to offset inventory shortages and rising home prices as housing affordability continued to decline in the third quarter of 2020, according to the NAHB/Wells Fargo Housing Opportunity Index (HOI). In all, 58.3% of new and existing homes sold between the beginning of July and end of September were affordable to families earning an adjusted U.S. median income of $72,900.

This is down from the 59.6% of homes sold in the second quarter of 2020 that were affordable to median-income earners and the lowest reading since the fourth quarter of 2018. “Though low mortgage rates and favorable demographics have helped spur demand, a lack of inventory exacerbated by supply chain issues stemming from the COVID-19 pandemic have contributed to rising home prices,” said NAHB Chairman Chuck Fowke.

“Surging lumber prices also peaked more than 170% above mid-April levels in September, raising building costs. However, lumber prices are now trending lower, which is good news for prospective home buyers.” “A six-month supply of homes is considered a normal supply and demand balance and this figure has been running below a four-month rate since July, putting upward pressure on home prices,” said NAHB Chief Economist Robert Dietz.

“As builders look to ramp up production, the work-at-home trend is contributing to a suburban shift, meaning that buyers have additional market power to shop for affordable markets.” The HOI shows that the national median home price jumped to an all-time high of $313,000 in the third quarter, surpassing the previous record-high of $300,000 set in the second quarter.

Meanwhile, average mortgage rates fell by 29 basis points in the third quarter to a record-low of 3.05% from 3.34% in the second quarter. Lansing-East Lansing, Mich. and Scranton-Wilkes Barre-Hazleton, Pa., were tied as the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. In Lansing-East Lansing, 89.4% of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $75,000.

Likewise, 89.4% of all new homes sold in Scranton-Wilkes Barre-Hazleton were affordable to families earning the area’s median income of $66,600. Rounding out the top five affordable major housing markets in respective order were Pittsburgh, Pa.; Harrisburg-Carlisle, Pa.; and Albany-Schenectady-Troy, N.Y. Meanwhile, Cumberland-Md.-W.Va., was rated the nation’s most affordable smaller market, with 96.2% of homes sold in the third quarter being affordable to families earning the median income of $57,500.

Smaller markets joining Cumberland at the top of the list included Wheeling, W.Va.-Ohio; Lima, Ohio; Binghamton, N.Y. and Monroe, Mich. San Francisco-Redwood City-South San Francisco, Calif., was the nation’s least affordable major housing market. There, just 9% of the homes sold during the third quarter were affordable to families earning the area’s median income of $130,900.

Other major metros at the bottom of the affordability chart were in California. In descending order, they included Los Angeles-Long Beach-Glendale; 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 10.9% of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $75,800. In descending order, other small markets at the lowest end of the affordability scale included Merced; Santa Cruz-Watsonville; San Rafael; and Napa.