A group of homebuilders warn of a major drop in home affordability

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Housing affordability showed a modest gain for average conditions in the first quarter of 2022, as a strong increase in the national median income helped offset a gradual rise in interest rates. However, homebuilders are warning of worsening current conditions as a sharp rise in mortgage rates in March and April, coupled with continued disruptions to the building materials supply chain, labor shortages labor and high inflation, drives up housing costs.

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI), 56.9% of new and existing homes sold between early January and late March were affordable for families earning a median US income of $90,000. Although this figure is up from 54.2% of homes sold in the fourth quarter of 2021, current market indicators point to deteriorating affordability conditions.

The first quarter HOI was calculated based on the following key factors:

  • An average quarterly interest rate of 3.86%, up 70 basis points from the previous quarter
  • A median income of $90,000 in 2022, up from $79,900 last year.
  • A national median home price of $365,000, up $5,000 from the fourth quarter of 2021 and a whopping $45,000 from the first quarter of 2021.
  • Affordability drops below 50% based on recent mortgage rates

Keeping all other factors the same and calculating nationwide affordability conditions based on end-April mortgage rates of 5.11% instead of the first quarter average of 3.86%, the HOI would have fallen from 54.2 in the fourth quarter of 2021 to 48.7 in the first quarter of 2022.

This means that based on the current housing market situation, only 48.7% of homes sold in the first quarter were affordable to median-income families, the lowest level of affordability recorded on the HOI since the start. of the revised series in the first quarter of 2012.

“The first-quarter reading is a retrograde gauge as soaring interest rates, ongoing construction material supply chain constraints and labor shortages continue to drive up construction costs. and put upward pressure on real estate prices,” said NAHB President Jerry Konter, a builder and developer from Savannah, Ga.

“Every quarter-point rise in mortgage rates means 1.3 million households are out of the market for a home at the national median price. And with the Federal Reserve moving aggressively to raise interest rates to In the short term and reduce its holding of mortgage-backed securities to fight inflation, which is at its highest level in 40 years, mortgage rates are expected to rise even further.

“Looking at current market conditions, affordability concerns continue to mount as rising interest rates and building material costs that are up 20% year-over-year lead to higher housing costs much faster than wages,” said NAHB chief economist Robert Dietz. “The HOI falling below 50 using these real-time estimates is an indication of significant housing affordability burdens, particularly for frustrated and potential first-time buyers. The best way to mitigate growing affordability challenges is for policymakers to address the ongoing supply chain disruptions that will allow builders to build more affordable homes.

The most and least affordable markets in the first quarter

Lansing-East Lansing, Michigan was the nation’s most affordable major housing market, defined as a population center of at least 500,000. There, 92.3% of all new and existing homes sold in the first quarter were affordable for families earning the region’s median income of $89,500.

The top five affordable housing markets:

  1. Lansing-East Lansing, Mich.
  2. Indianapolis-Carmel-Anderson, Ind.
  3. Scranton—Wilkes-Barre, Pa.
  4. Rochester, NY
  5. Dayton-Kettering, Ohio

Meanwhile, Wheeling, W.Va.-Ohio., was ranked the most affordable small market in the nation, with 97.3% of homes sold in the first quarter being affordable for families earning a median income of $75,400.

The top five small affordable housing markets:

  1. Wheeling, West Virginia – Ohio
  2. Cumberland, Md.-W.Va.
  3. Elmira, NY
  4. Utica-Rome, NY
  5. Davenport-Moline-Rock Island, Iowa-Illinois.

For the sixth straight quarter, Los Angeles-Long Beach-Glendale, Calif., remained the nation’s least affordable major real estate market. There, just 8.3% of homes sold in the first quarter were affordable for families earning the region’s median income of $90,100.

The top five least affordable housing markets, all located in California:

  1. Los Angeles-Long Beach-Glendale
  2. Anaheim-Santa Ana-Irvine
  3. San Francisco-San Mateo-Redwood City
  4. San Diego-Chula Vista-Carlsbad
  5. Stockton

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 9.2% of all new and existing homes sold in the first quarter were affordable for families earning the region’s median income of $90,100.

The top five least affordable small housing markets, all located in California:

  1. Salinas
  2. Santa Maria-Santa Barbara
  3. San Luis Obispo-Paso Robles
  4. Napa
  5. Santa Cruz-Watsonville

For more information, visit nahb.org/hoi.

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