Housing Affordability Edges Lower in the Third Quarter

November 08, 2018

A modest increase in interest rates and home prices kept housing affordability at a 10-year low in the third quarter of 2018, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) released today.

In all, 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 national median home price edged up from $265,000 in the second quarter of 2018 to $268,000 in the third quarter. This is the highest quarterly median price in the history of the HOI series. 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.

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

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

For the second straight quarter, Syracuse, N.Y., remained as the nation’s most affordable major housing market. 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. Meanwhile, Kokomo, Ind., was rated the nation’s most affordable smaller market, with 93.2 percent of homes sold in the third quarter being affordable to families earning the median income of $64,100.

Rounding out the top five affordable major housing markets in respective order were Scranton-Wilkes Barre-Hazleton, Pa.; Indianapolis-Carmel-Anderson, Ind.; Youngstown-Warren-Boardman, Ohio-Pa.; and Harrisburg-Carlisle, Pa.

Smaller markets joining Kokomo at the top of the list included Elmira, N.Y.; Fairbanks, Alaska; Cumberland, Md.-W.Va.; and Springfield, Ohio.

San Francisco, for the fourth straight quarter, was the nation’s least affordable major market. There, just 6.4 percent of the homes sold in the third quarter of 2018 were affordable to families earning the area’s median income of $116,400.

Other major metros at the bottom of the affordability chart were located in California. In descending order, they included Los Angeles,-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and San Diego-Carlsbad.

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.

In descending order, other small markets at the lowest end of the affordability scale included Salinas; Napa; San Luis Obispo-Paso Robles-Arroyo Grande; and San Rafael.

Please visit www.nahb.org/hoi for tables, historic data and details.

Editor's Note: The NAHB/Wells Fargo Housing Opportunity Index (HOI) is a measure of the percentage of homes sold in a given area that are affordable to families earning the area's median income during a specific quarter. Prices of new and existing homes sold are collected from actual court records by Core Logic, a data and analytics company. Mortgage financing conditions incorporate interest rates on fixed- and adjustable-rate loans reported by the Federal Housing Finance Agency.