Strengthening home prices and rising interest rates dragged down housing affordability for nationwide metros during the third quarter, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).
Families earning the U.S. median income of $64,400 could afford 64.5% of new and existing homes sold between July and September—a decline from the 69.3% of homes sold that were affordable to middle-income earners in the second quarter.
The quarter-over-quarter decline is also the largest drop the HOI has seen since the second quarter of 2004.
“Housing affordability is being negatively affected by a ‘perfect storm’ scenario,” said NAHB Chairman Rick Judson. “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.”
Steady home price increases in tandem with rising mortgage rates and tight underwriting standards have also driven the decline of affordability, said 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,” Crowe said. “Some of the decline in the affordability index could be the result of a loss in some more modest priced homes sales as tight underwriting standards have limited the purchases by moderate income families.
Indianapolis-Carmel, Indiana, and Syracuse, New York were tied as the nation’s most affordable major housing markets as 93.3% of all new and existing homes sold in the third quarter were affordable to families earning median incomes of $65,100 and $65,800, respectively.
Major metros like San Francisco-San Mateo-Redwood City, California held the lowest spots for housing affordability, with just 16% of homes sold during the third quarter were affordable to families earning the area’s median income of $101,200.
Other major metros that ranked at the bottom of the NAHB/Well Fargo index included Los Angeles-Long-Beach-Glendale, CA; New York-White Plains-Wayne, N.Y.-N.J.
Written by Jason Oliva