Low mortgage rates and swelling demand saw housing affordability decline in the third quarter, according to the National Association of Home Builders (NAHB)
In Q3 2020, the NAHB/Wells Fargo Housing Opportunity Index (HOI) declined 1.3% to its lowest reading since the fourth quarter of 2018, a sentiment NAHB Chairman Chuck Fowke said is likely due to tight inventory and rising lumber costs.
“Though low mortgage rates and favorable demographics have helped spur demand, a lack of inventory exacerbated by supply chain issues stemming from the COVID-19 pandemic have contributed to rising home prices,” said Fowke. “Surging lumber prices also peaked more than 170% above mid-April levels in September, raising building costs. However, lumber prices are now trending lower, which is good news for prospective homebuyers.”
Overall, 58.3% of new and existing homes sold in the third quarter were affordable to families earning an adjusted U.S. median income of $72,900. This is down from the 59.6% of homes sold in Q2 2020 that were affordable to median-income earners.
NAHB’s report also showed that the national median home price rose to an all-time high of $313,000, breaking the previous record-high of $300,000 set in the second quarter of this year. Meanwhile, average mortgage rates were 29 basis points lower in Q3, down to a record low of 3.05% from 3.34% in Q2.
Lansing-East Lansing, Mich. (89.4%), and Scranton-Wilkes Barre-Hazleton, Pa. (89.4%), were tied as the nation’s most affordable major housing markets, defined as a metro with a population of at least 500,000.
San Francisco-Redwood City-South San Francisco, Calif., was the least affordable major housing market, with just 9% of homes were affordable to families earning the area’s median income of $130,900.
Other California markets among the least affordable included Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Diego-Carlsbad; and San Jose-Sunnyvale-Santa Clara.
“A six-month supply of homes is considered a normal supply and demand balance, and this figure has been running below a four-month rate since July, putting upward pressure on home prices,” said NAHB Chief Economist Robert Dietz. “As builders look to ramp up production, the work-at-home trend is contributing to a suburban shift, meaning that buyers have additional market power to shop for affordable markets.”