Housing Affordability Shows Signs of Weakening as Challenges Lie Ahead

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Housing affordability weakened slightly during the first quarter of 2021 as rising material costs and supply shortages, along with expected increases in mortgage rates stemming from a growing economy, are likely to exacerbate affordability challenges in the year ahead.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI), 63.1 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 $79,900. This is slightly down from the 63.3 percent of homes sold in the fourth quarter of 2020 that were affordable to households earning the median income of $78,500.

The first quarter 2021 HOI includes a significant revision to the 2020 data. The revisions reflect last year’s actual estimates for median family income as calculated by the Department of Housing and Urban Development prior to the COVID-19 pandemic. To account for the pandemic’s effects, NAHB adjusted HUD’s median income estimates lower for all of 2020. Since the virus crisis did not negatively impact median incomes last year, NAHB recalculated the four HOI quarterly reports for 2020 using the actual estimates. This had the effect of increasing the affordability measures for 2020, which is consistent with strong buyer demand seen last year.

The HOI shows that the national median home price held steady at $320,000 in the first quarter, unchanged from the fourth quarter. Meanwhile, average mortgage rates increased by 11 basis points in the first quarter to 2.96 percent from the previous all-time low of 2.85 percent in the fourth 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, 91.8 percent of all new and existing homes sold in the first quarter were affordable to families earning the area’s median income of $79,100.

Meanwhile, Cumberland-Md.-W.Va., was rated the nation’s most affordable smaller market, with 97.5 percent of homes sold in the first quarter being affordable to families earning the median income of $60,800.

For the second consecutive quarter, Los Angeles-Long Beach-Glendale, Calif. remained the nation’s least affordable major housing market. There, just 11.6 percent of the homes sold during the first quarter were affordable to families earning the area’s median income of $78,700.

Four of the five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, Calif., where 15.1 percent of all new and existing homes sold in the first quarter were affordable to families earning the area’s median income of $80,900.

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



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