Record-low mortgage rates were not enough to offset inventory shortages and rising home prices as housing affordability continued to decline in the third quarter of 2020, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI).
In all, 58.3 percent of new and existing homes sold between the beginning of July and end of September were affordable to families earning an adjusted U.S. median income of $72,900. This is down from the 59.6 percent of homes sold in the second quarter of 2020 that were affordable to median-income earners and the lowest reading since the fourth quarter of 2018.
HOI calculations use median family income estimates from the Department of Housing and Urban Development (HUD). However, HUD’s estimates for 2020 were developed prior to the COVID-19 pandemic. To account for the pandemic’s effects, estimates were adjusted consistent with NAHB’s economic forecast for 2020. As a result, the 2020 median income estimates used in HOI calculations are 7.1 percent lower than the initial 2020 estimates produced by HUD.
The HOI shows that the national median home price jumped to an all-time high of $313,000 in the third quarter, surpassing the previous record-high of $300,000 set in the second quarter. Meanwhile, average mortgage rates fell by 29 basis points in the third quarter to a record-low of 3.05 percent from 3.34 percent in the second quarter.
Lansing-East Lansing, Mich. and Scranton-Wilkes Barre-Hazleton, Pa., were tied as the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. In Lansing-East Lansing, 89.4 percent of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $75,000. Likewise, 89.4 percent of all new homes sold in Scranton-Wilkes Barre-Hazleton were affordable to families earning the area’s median income of $66,600.
Meanwhile, Cumberland-Md.-W.Va., was rated the nation’s most affordable smaller market, with 96.2 percent of homes sold in the third quarter being affordable to families earning the median income of $57,500.
San Francisco-Redwood City-South San Francisco, Calif., was the nation’s least affordable major housing market. There, just 9 percent of the homes sold during the third quarter were affordable to families earning the area’s median income of $130,900.
All five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, where 10.9 percent of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $75,800.
Visit nahb.org/hoi for tables, historic data and details.
Once higher prices offset the benefit of near historically low interest rates the boom will come to a screeching halt. Prices do not impact the buying decision as much as initial cash investment and total monthly payment. Once these two factors are largely unacceptable, buyers will leave the market.