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Housing Affordability Continues to Decline in Third Quarter

Published on Friday - November 15, 2013

The housing sector recovery has increased optimism on a national level. Homeowners have finally started to establish equity in the wake of the decline and more people are actively participating in the market. However, appreciation rates have made it increasingly difficult for prospective buyers to acquire a property. According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, the third quarter of 2013 witnessed housing affordability drop. The decline has been attributed to both strengthening home prices and increased interest rates in metros across the country.

Due largely to the fact that homes are appreciating at such a rapid pace, only 64.5% of new and existing homes sold in the third quarter were affordable to families earning the U.S. median income of $64,400. Of particular concern, however, is the downward trend that has managed to transition over from the second quarter. Accordingly, families earning the median income accounted for 69.3% of the new and existing homes sold in the second quarter. According to the recent index, the decline in home affordability represents the biggest drop since the second quarter of 2004.

Conditions unique to this recovery have contributed to the recent decline in housing affordability.

“Housing affordability is being negatively affected by a ‘perfect storm’ scenario,” observed NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. “With markets across the country recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots and labor.”

Despite the impact of housing appreciation, mortgage rates continue to make housing less affordable to the average American.

“The decline in affordability is the result of higher mortgage rates and the more than year-long steady increase in home prices,” observed NAHB Chief Economist David Crowe. “While affordability has come down from the peak in early 2012, the index still means a family earning a median income can afford 65 percent of homes recently sold. Some of the decline in the affordability index could be the result of a loss in some more modest priced home sales as tight underwriting standards have limited the purchases by moderate income families.”

Despite housing remaining less affordable on a national level, individual regions are subjected to different scenarios. That is to say, some metros are more affordable than others. Indianapolis and Syracuse, N.Y. were recently dubbed the nation’s most affordable metros in the third quarter. Approximately 93.3% of the homes sold in these major housing markets were affordable to families earning the areas’ medium income of $65,100 and $65,800, respectively.

Other major housing markets that topped the affordability chart for the third quarter included:

  • Youngstown-Warren-Boardman, Ohio-Pa.
  • Harrisburg-Carlisle, Pa.
  • Buffalo-Niagara Falls, N.Y.

Conversely, California metros continued to demonstrate an increased propensity for unaffordability. For a fourth consecutive quarter, San Francisco-San Mateo-Redwood City, CA held the lowest spot among major markets on the affordability chart. Just 16% of the families earning the areas’ median income ($101,200) were able to afford a home during the third quarter.

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, the following metros proved to be the least affordable:

  • Los Angeles-Long Beach-Glendale, CA
  • Santa Ana-Anaheim-Irvine, CA
  • New York-White Plains-Wayne, N.Y-N.J.
  • San Jose-Sunnyvale-Santa Clara, CA

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