Eye On Housing
Rising wages and moderating home prices offset a rise in mortgage interest rates to give housing affordability a slight boost in the first quarter of 2017, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).
In all, 60.3 percent of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $68,000. This is up from the 59.9 percent of homes sold that were affordable to median-income earners in the fourth quarter.
The national median home price fell to $245,000 in the first quarter from $250,000 in the final quarter of 2016. Meanwhile, average mortgage rates rose nearly half a point from 3.84 percent in the fourth quarter to 4.33 percent in the first quarter.
For the second straight quarter, Youngstown-Warren-Boardman, Ohio-Pa., was rated the nation’s most affordable major housing market. There, 92.7 percent of all new and existing homes sold in the first quarter were affordable to families earning the area’s median income of $54,600. Meanwhile, Kokomo, Ind., was rated the nation’s most affordable smaller market, with 96.3 percent of homes sold in the first quarter being affordable to families earning the median income of $62,500.
For the 18th consecutive quarter, San Francisco-Redwood City-South San Francisco, Calif., was the nation’s least affordable major housing market. There, just 11.8 percent of homes sold in the first quarter were affordable to families earning the area’s median income of $108,400.
All five least affordable small housing markets were also in California. At the very bottom of the affordability chart was Salinas, where 13.8 percent of all new and existing homes sold were affordable to families earning the area’s median income of $63,100.
Visit nahb.org/hoi for tables, historic data and details.
While the move back over 60 percent for affordability is welcome, the trend on the chart since 2012 is somewhat less encouraging. Rising home prices over that time and mortgage rates that have moved off record bottoms have pulled back by what appears to be 15 or 16 percentage points in just five years’ time.
Also, it seems that the indicator has started to actually move below levels that existed before the boom times of the last decade — the big swoon in the middle of the chart is indicative of home prices that reached unsustainable levels (most markets saw home prices hit bottoms in 2011 or 2012).
It also bears consideration that affordability doesn’t necessarily mean accessibility, and the 60 percent level for the HOI could actually be meaningfully lower if present consumer debt levels are taken into account, especially if applied to a likely homebuying demographic cohort (i.e. Millennials).