Lack of Inventory, Higher Prices Push Housing Affordability Near Two-Year Low
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 National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) released today.
In all, 58.3 percent 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 percent 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, a custom home builder from Tampa, Fla. “Surging lumber prices also peaked more than 170 percent 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 percent from 3.34 percent 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 percent 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 percent 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 percent 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 percent 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 percent 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.
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. This release incorporates the use of Freddie Mac’s 30-year fixed effective interest rates series, following the discontinuation in mid-2019 of the FHFA series previously used in HOI calculations. National and metropolitan area HOI numbers were revised back to the first quarter of 2012 using Freddie Mac’s interest rate series.