Record-low mortgage rates offset record-high home prices to keep housing affordability steady in the fourth quarter of 2020, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI). Though affordability rates held firm, regulatory and supply-side challenges threaten to aggravate affordability problems in the year ahead.

In all, 58.3 percent of new and existing homes sold between the beginning of October and end of December were affordable to families earning an adjusted U.S. median income of $72,900. This is unchanged from the 58.3 homes sold in the third 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, 2020 estimates were adjusted at the beginning of the year to remain consistent with NAHB’s economic forecast. 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 $320,000 in the fourth quarter, surpassing the previous record-high of $313,000 set in the third quarter. Meanwhile, average mortgage rates fell by 20 basis points in the fourth quarter to a record-low of 2.85 percent from the previous all-time low of 3.05 percent in the third quarter.

Lansing-East Lansing, Mich. was the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. In Lansing-East Lansing, 89.9 percent of all new and existing homes sold in the fourth quarter were affordable to families earning the area’s median income of $75,000.

Meanwhile, Cumberland-Md.-W.Va., was rated the nation’s most affordable smaller market, with 96.4 percent of homes sold in the fourth quarter being affordable to families earning the median income of $57,500.

Los Angeles-Long Beach-Glendale, Calif. supplanted San Francisco-Redwood City-South San Francisco, Calif., as the nation’s least affordable major housing market. There, just 9.1 percent of the homes sold during the fourth quarter were affordable to families earning the area’s median income of $71,800.

All five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, where 13.6 percent of all new and existing homes sold in the fourth quarter were affordable to families earning the area’s median income of $75,800.

Visit nahb.org/hoi for tables, historic data and details.

Tags: housing affordability, housing economics