Housing Affordability Falls to More than 10-Year Low as Rising Interest Rates Take a Toll

Housing affordability fell to its lowest level since the National Association of Home Builders began tracking it on a consistent basis in 2012 as rising mortgage rates, ongoing building material supply chain disruptions, high inflation and elevated home prices pushed the housing market into a recession. And with mortgage rates moving even higher in the fall, affordability conditions are expected to further deteriorate through the end of the year.

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, just 42.2 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 $90,000. This marks the second consecutive quarterly record low for housing affordability since the Great Recession, trailing the previous mark of 42.8 percent set in the second quarter.

HOUSING MARKET AND AFFORDABILITY CONDITIONS CONTINUE TO WEAKEN

"The housing market and affordability conditions have continued to weaken throughout the year as rising mortgage rates, supply chain bottlenecks and a lack of skilled construction workers continue to push housing costs higher," said NAHB Chairman Jerry Konter. "Entry-level buyers are particularly hurt, as more of them are getting priced out of the market."

"Builder sentiment has declined 10 straight months and worsening affordability conditions remain a top concern as single-family production continues to decline and buyers pull back because of rising interest rates," said NAHB Chief Economist Robert Dietz. "The best way to reduce housing costs is to boost supply. Policymakers must prioritize fixing building material supply chains and easing excessive regulations to help bring down construction costs and enable home builders to increase housing production." 

While the HOI shows that the national median home price fell to $380,000 in the third quarter, it is still the second-highest median price in the history of the series, after the $390,000 recorded in the previous quarter. Meanwhile, average mortgage rates reached a series high of 5.72 percent in the third quarter, up from 5.33 percent a quarter earlier. Looking ahead, affordability will continue to weaken, as Freddie Mac reports that at the end of October, the 30-year fixed-rate mortgage surpassed seven percent for the first time since April 2002.

THE MOST AND LEAST AFFORDABLE MARKETS IN THE THIRD QUARTER

Lansing-East Lansing, Mich., was the nation's most affordable major housing market, defined as a metro with a population of at least 500,000. There, 84.4 percent of all new and existing homes sold in the third quarter were affordable to families earning the area's median income of $89,500.

Top five affordable major housing markets:
1.         Lansing-East Lansing, Mich.
2.         Indianapolis-Carmel-Anderson, Ind.
3.         Scranton-Wilkes-Barre, Pa.
4.         Toledo, Ohio
5.         Syracuse, N.Y.

Meanwhile, Cumberland, Md.-W.Va., was rated the nation's most affordable small market, with 92.1 percent of homes sold in the third quarter being affordable to families earning the median income of $71,300.

Top five affordable small housing markets:
1.         Cumberland, Md.-W.Va.
2.         Wheeling, W.Va.-Ohio
3.         Davenport-Moline-Rock Island, Iowa-Ill.
4.         Elmira, N.Y.
5.         Utica-Rome, N.Y.

For the eighth straight quarter, Los Angeles-Long Beach-Glendale, Calif., remained the nation's least affordable major housing market. There, just 3.7 percent of the homes sold during the third quarter were affordable to families earning the area's median income of $91,100.

Top five least affordable major housing markets—all located in California:
1.         Los Angeles-Long Beach-Glendale
2.         Anaheim-Santa Ana-Irvine 
3.         San Diego-Chula Vista-Carlsbad
4.         Oxnard-Thousand-Oaks-Ventura
5.         San Francisco-San Mateo-Redwood City

The top five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, Calif., where 5.9 percent of all new and existing homes sold in the third quarter were affordable to families earning the area's median income of $90,100.

Top five least affordable small housing markets—all located in California:
1.         Salinas
2.         Napa
3.         Santa Cruz-Watsonville
4.         Santa Maria-Santa Barbara
5.         San Luis Obispo-Paso Robles