A new report by the National Association of Home Builders (NAHB) indicates that housing affordability has hit a 10-year low as persisting challenges in home construction converge with rising mortgage rates and home prices.
The association released its NAHB/ Well Fargo Housing Opportunity Index (HOI) report on Feb. 8, which found that 54.2% of new and existing homes sold between the start of October and the end of December were affordable to families earning the U.S. median income of $79,900. That marks the lowest affordability level recorded since the first quarter of 2012, according to NAHB experts.
“Supply chain disruptions stemming from labor shortages, to lumber, to home appliances and other building materials, are delaying construction times and contributing to higher home prices,” said NAHB chairman, Chuck Fowke, in a statement.
The report shows that the national median home price increased to a record $360,000 in the fourth quarter—up by $5,000 from the third quarter last year and $40,000 from the start of 2021.
At the same time, mortgage rates climbed from 2.95% in the third quarter to 3.16% in Q4. Based on recent Freddie Mac reports, rates have surpassed 3.5%, which NAHB notes will further affect affordability later this year.
Recent activity by the Federal Reserve, which could make its first of several interest rate hikes as early as March, won’t help the affordability situation either, according to NAHB chief economist, Robert Dietz.
“To help ease growing affordability problems, policymakers must take steps to help builders to increase production to meet strong demand and stem the rapid climb in home prices that has taken place over the past year,” Dietz said in a statement.
In a separate interview with RISMedia, Dietz also indicates that higher construction costs continue to challenge the ability of builders to reduce the large housing deficit the country faces, measuring at least one million homes as a shortfall.
“Residential construction material costs are now 21% higher than a year ago, and lumber prices remain elevated, although a reduction in lumber tariff rates, recently announced, should help,” he says. “The skilled labor shortage and lack of building lots are also important obstacles to increasing inventory.”
The report also named the top five least and most affordable markets across the nation based on new and existing homes sold within the price range of families earning their area’s median income.
California markets accounted for each of the nation’s five least affordable housing markets with a population of at least 500,000.
“We have a crisis when it comes to affordable housing in California,” says Markus Canter, director of the New Homes Division of Berkshire Hathaway HomeServices California Properties.
“There’s no doubt that builders can’t keep up with buyer demand here in California,” Canter adds. “The main reasons are material costs and labor supply. Entitlement approvals are taking longer, and developers were caught off guard by this buying binge that started during the COVID era.”
Mark Handlovitch is an associate broker at RE/MAX Real Estate Solutions in Pittsburgh, which the report put in the top three most affordable major housing markets in the U.S.
Compared with large cities that have seen surges in home prices, Handlovitch told RISMedia that Pittsburgh’s price appreciation has risen at a slower rate, allowing the city to maintain its relative affordability compared with other metro markets.
“Our resale market inventory has started to increase, and the home prices are at or less than where they were,” he says. “When I say that, I don’t mean that the market is going down, but you need to market smarter now to try and get multiple offers rather than trying to throw it out there with a higher price and getting multiple offers.”
Despite being relatively inexpensive compared to other cities, Handlovitch told RISMedia that affordability challenges have started influencing where buyers are searching in his market.
“The market has changed, and it has leveled out a little bit on the inventory,” he says. The higher mortgage rates have definitely affected where the buyers are because it affects their affordability.”
While building costs affect new home prices in his market, Handlovitch also suggests that some builders are “manipulating the market to their advantage.”
“They’ve been building, but not at a rate that they could build, and the reason being is because they can do so, but the low inventory has made their availability of selling new homes at a higher price very easy,” he says. ” are in a situation where they can actually manipulate and control that marketplace because the resale market is right now facing that low inventory crunch.”
Jordan Grice is RISMedia’s associate online editor. Email him your real estate news to jgrice@rismedia.com.
