Washington DC – Home affordability held steady at its lowest level in nearly a decade as higher home prices offset lower mortgage rates to stabilize affordability in the third quarter of 2021, according to the National Associate of Home Builders (NAHB). However, NAHB also found that ongoing supply chain disruptions and the prospect of higher interest rates in the future threaten to exacerbate affordability problems in the coming months.
According to the NAHB/Wells Fargo Housing Opportunity Index (HOI), 56.6% of new and existing homes sold between early July and late September were affordable to families earning the US median income of $79,900. This is unchanged from 56.6% of homes sold in the second quarter of 2021 and remains the lowest affordability level since the start of the revised series in the first quarter of 2012.
“Continuing bottlenecks in the building materials supply chain and tariffs on Canadian wood and Chinese steel and aluminum continue to put upward pressure on construction costs and housing prices,” said Chuck Fowke, president of the NAHB. “Policymakers need to address supply chain vulnerabilities that disrupt and delay construction projects and hurt housing affordability.”
According to NAHB chief economist Robert Dietz, interest rates are expected to rise gradually in the coming months as the Fed begins to phase out its monthly purchases of bonds and mortgage-backed securities. “To prevent affordability issues from worsening in the future, policymakers need to address supply chain challenges that hinder new home production,” Dietz said. “Helping builders increase production will also slow the rapid rise in house prices that has taken place over the past year.”
The HOI shows that the national median home price rose to a record $355,000 in the third quarter, up $5,000 from the second quarter and $35,000 from the first quarter. Meanwhile, average mortgage rates fell 14 basis points to 2.95% in the third quarter from 3.09% in the second quarter. However, mortgage rates are currently above 3.1%, and this higher trend could impact affordability later this year and into 2022.
The most and least affordable markets
Lansing-East Lansing, Michigan, was the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. There, 89.1% of all new and existing homes sold in the third quarter were affordable to families earning the average income of $79,100 in the area.
Top five affordable major housing markets, according to NAHB, include:
- Lansing-East Lansing, Mich.
- Pittsburgh, Dad.
- Indianapolis-Carmel-Anderson, Ind.
- Scranton-Wilkes-Barre-Hazleton, Pa.
- Harrisburg-Carlisle, Pa.
Meanwhile, Davenport-Moline-Rock Island, Iowa-Ill., was rated as the nation’s most affordable small market, with 93.4% of homes sold in the third quarter being affordable to families with the median income of $76,300.
Top five affordable small housing markets, according to NAHB, include:
- Davenport-Moline-Rock Island, Iowa-Ill.
- Monroe, me.
- Sierra Vista-Douglas, Arizona.
- Fairbanks, Alaska
- Wheeling, W.Va.-Ohio.
For the fourth straight quarter, Los Angeles-Long Beach-Glendale, California, remained the country’s least affordable major housing market. There, only 8.3% of homes sold in the third quarter were affordable to families earning the area’s median income of $80,000.
Top five least affordable major housing markets, according to NAHB, all in California:
- Los Angeles-Long Beach-Glendale
- Anaheim-Santa Ana-Irvine moved up one spot to match San Francisco-Redwood City-South San Francisco in the second slot
- San Diego Carlsbad
- Oxnard-Thousand Oaks-Ventura
Four of the five least affordable small housing markets were also located in the Golden State. At the very bottom of the affordability chart was Corvallis, Oregon, where 6% of all new and existing homes sold in the third quarter were affordable to families earning the average income of $93,000 in the area.
The top five least affordable small housing markets, according to NAHB, include:
- Salinas, California.
- Napa, California.
- Santa Cruz Watsonville, California.
- San Luis Obispo – Paso Robles – Arroyo Grande, California.
- Corvallis, Or.