Mirroring a steep rise in mortgage rates that began in the early part of 2022 and coupled with ongoing building material supply chain bottlenecks that increased construction costs, housing affordability posted three consecutive quarterly declines in 2022 and now stands at its lowest recorded level, according to the National Association of Home Builders (NAHB). However, a recent drop in mortgage rates over the past two months signals that declining affordability conditions may have reached their low point for this cycle.
According to the latest NAHB/Wells Fargo Housing Opportunity Index (HOI), just 38.1% of new and existing homes sold between the beginning of October and end of December were affordable to families earning the median income of $90,000. This marks the third straight quarterly record low for housing affordability since the Great Recession, trailing the previous mark of 42.2% in the third quarter and 42.8% set in Q2.
Key highlights:
- While the HOI shows that the national median home price fell to $370,000, it is still the third-highest median price in the history of the series, after the $380,000 price recorded in Q3 and the all-time high of $390,000 in Q2.
- Indianapolis-Carmel-Anderson, Indiana, was the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. There, 75.9% of all new and existing homes sold in the fourth quarter were affordable to families earning the area’s median income of $94,100.
- The top five affordable major housing markets were Indianapolis-Carmel-Anderson, Indiana; Rochester, New York; Pittsburgh, Pennsylvania; Toledo, Ohio, and Dayton-Kettering, Ohio.
- Meanwhile, Bay City, Michigan, was rated the nation’s most affordable small market, with 88.5% of homes sold in Q4 being affordable to families earning the median income of $74,800.
- The top five affordable small housing markets were Bay City, Michigan; Wheeling, West Virginia-Ohio; Elmira, New York; Davenport-Moline-Rock Island, Iowa-Illinois, and Cumberland, Maryland-West Virginia.
- For the ninth straight quarter, Los Angeles-Long Beach-Glendale, California, remained the nation’s least affordable major housing market. There, just 2.2% of the homes sold were affordable to families earning the area’s median income of $91,100.
- The top five least affordable major housing markets—all located in California—were Los Angeles-Long Beach-Glendale, Anaheim-Santa Ana-Irvine, San Diego-Chula Vista-Carlsbad, San Francisco-San Mateo-Redwood City, and San Jose-Sunnyvale-Santa Clara.
- The top five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, California, where 5% of all new and existing homes sold were affordable to families earning the area’s median income of $90,100.
- The top five least affordable small housing markets—all located in California—were Salinas, Santa Maria-Santa Barbara, Napa, San Luis Obispo-Paso Robles, and Santa Rosa-Petaluma.
Major takeaway:
“Rising mortgage rates, supply chain disruptions, elevated construction costs and a lack of skilled workers and lots all contributed to a declining housing market and worsening affordability conditions going back to the second quarter of last year,” said NAHB Chairman Alicia Huey. “But we are anticipating a better affordability climate in the months ahead, with mortgage rates already posting a modest drop since the beginning of the year and expectations that the Federal Reserve will end its latest string of interest rate hikes by the end of the first quarter.”
“With mortgage rates anticipated to continue to trend lower later this year, affordability conditions are expected to improve, and this will increase demand and bring more buyers back into the market,” said NAHB Chief Economist Robert Dietz. “Ultimately, the best way to reduce housing costs is for policymakers to put into place the right policies that will allow builders to produce more affordable housing by fixing broken supply chains, easing excessive regulations and ensuring sufficient liquidity in the housing market.”
