Washington D.C.—Housing affordability held steady at its lowest level in nearly a decade, as higher home prices offset lower mortgage rates to keep the affordability rate flat in the third quarter of 2021, according to the National Associate of Home Builders (NAHB). However, NAHB also found that ongoing supply chain disruptions and the prospect of higher interest rates in the future threaten to exacerbate affordability problems in the months ahead.
According to the NAHB/Wells Fargo Housing Opportunity Index (HOI), 56.6% of new and existing homes sold between the beginning of July and the end of September were affordable to families earning the U.S. median income of $79,900. This is unchanged from the 56.6% of homes sold in the second quarter of 2021 and remains the lowest affordability level since the beginning of the revised series in the first quarter of 2012.
“Persistent building material supply chain bottlenecks and tariffs on Canadian lumber and Chinese steel and aluminum continue to place upward pressure on construction costs and home prices,” said Chuck Fowke, NAHB chairman. “Policymakers must fix supply chain vulnerabilities that are disrupting and delaying construction projects and hurting housing affordability.”
According to NAHB chief economist, Robert Dietz, interest rates are anticipated to gradually rise in the months to come as the Fed starts to taper its monthly bond and mortgage-backed security purchases. “To keep affordability problems from worsening in the future, policymakers need to tackle supply-chain challenges that are hindering new home production,” Dietz said. “Helping builders boost output will also slow the rapid rise in home prices that has occurred over the past year.”
The HOI shows that the national median home price increased to a record $355,000 in the third quarter, up $5,000 from the second quarter and $35,000 from the first quarter. Meanwhile, average mortgage rates fell by 14 basis points in the third quarter to 2.95% from the rate of 3.09% in the second quarter. However, mortgage rates are currently running above 3.1%, and this higher trend could affect affordability later this year and into 2022.
The most and least affordable markets
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. There, 89.1% of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $79,100.
Top five affordable major housing markets, according to NAHB, include:
- Lansing-East Lansing, Mich.
- Pittsburgh, Pa.
- Indianapolis-Carmel-Anderson, Ind.
- Scranton-Wilkes-Barre-Hazleton, Pa.
- Harrisburg-Carlisle, Pa.
Meanwhile, Davenport-Moline-Rock Island, Iowa-Ill., was rated the nation’s most affordable small market, with 93.4% of homes sold in the third quarter being affordable to families earning the median income of $76,300.
Top five affordable small housing markets, according to NAHB, include:
- Davenport-Moline-Rock Island, Iowa-Ill.
- Monroe, Mich.
- Sierra Vista-Douglas, Ariz.
- Fairbanks, Alaska
- Wheeling, W.Va.-Ohio.
For the fourth straight quarter, Los Angeles-Long Beach-Glendale, Calif., remained the nation’s least affordable major housing market. There, just 8.3% of the homes sold during the third quarter were affordable to families earning the area’s median income of $80,000.
Top five least affordable major housing markets, according to NAHB—all located in California:
- Los Angeles-Long Beach-Glendale
- Anaheim-Santa Ana-Irvine moved up one spot to tie San Francisco-Redwood City-South San Francisco in the second slot
- San Diego-Carlsbad
- Oxnard-Thousand Oaks-Ventura
Four of the five least affordable small housing markets were also in the Golden State. However, at the very bottom of the affordability chart was Corvallis, Ore., where 6% of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $93,000.
Top five least affordable small housing markets, according to NAHB, include:
- Salinas, Calif.
- Napa, Calif.
- Santa Cruz-Watsonville, Calif.
- San Luis Obispo-Paso Robles-Arroyo Grande, Calif.
- Corvallis, Ore.