Washington, D.C.—Housing affordability declined in the second quarter after three consecutive quarters of modest improvement, according to the National Association of Home Builders (NAHB). Higher mortgage rates, rising construction costs and economic uncertainty weighed on the market.
The latest National Association of Home Builders/Wells Fargo Cost of Housing Index showed that a family earning the national median income of $106,800 needed 34% of its income to cover the mortgage payment on a median-priced new home.
Low-income families faced an even larger burden. NAHB defines those households as earning 50% of the median income. They would need to spend 67% of their earnings to make the same mortgage payment.
Existing homes were even less affordable. A typical family would need to spend 36% of its income on a median-priced existing home. A low-income family would need to spend 71%.
“Housing affordability weakened for both new and existing homes in the second quarter, driven by several factors,” Bill Owens, chairman of NAHB and a home builder and remodeler from Worthington, Ohio. “Buyers faced high mortgage rates and economic uncertainty, while builders dealt with rising construction costs, unnecessary regulatory burdens and labor shortages. The recently enacted 21st Century ROAD to Housing Act will help address many of these challenges, but implementation will take time.”
NAHB estimates the nation faces a housing shortage of roughly 1.2 million units.
“A nationwide housing shortage of roughly 1.2 million units continues to strain affordability and the latest CHI data show that too many households remain cost burdened,” said Robert Dietz, NAHB chief economist. “Policymakers need to remove regulatory barriers, reduce economic uncertainty and support a stronger business climate so builders can produce the homes and apartments the nation urgently needs.”
Mortgage rates, prices push costs higher
The share of income needed to purchase a new home rose from 32% in the first quarter to 34% in the second quarter.
Several factors contributed to the increase. The average mortgage rate rose by more than 30 basis points while the median price of a new home increased 2%.
The low-income CHI also increased, rising from 65% to 67%.
Affordability for existing homes deteriorated even more. The CHI for a median-income family rose from 32% in the first quarter to 36% in the second quarter. For low-income families, the index increased from 65% to 71%.
A sharp increase in existing-home prices drove much of that decline.
The national median price of a new home reached $410,700 in the second quarter. That was up 2% from $403,200 in the first quarter.
The median existing-home price increased 8%, rising to $434,900 from $404,300.
Meanwhile, the average 30-year mortgage rate increased from 6.20% in the first quarter to 6.51% in the second quarter.
The CHI measures the share of a typical family’s income needed to make a mortgage payment. The calculation uses median home prices and assumes a 10% down payment. It also accounts for taxes, insurance and private mortgage insurance.
The Department of Housing and Urban Development provides the median family income data used in the index.
HUD considers families cost burdened when they spend more than 30% of their income on housing. Families spending more than 50% are considered severely cost burdened.
Affordability varies widely by market
The CHI also measures affordability across 175 metropolitan areas using local home prices and incomes.
In eight of those markets, a typical family would need to spend more than 50% of its income on a median-priced existing home. Another 77 markets required families to spend between 31% and 50%.
The remaining 90 markets had a CHI of 30% or less.
San Jose-Sunnyvale-Santa Clara, Calif., ranked as the most severely cost-burdened market. A typical family there would need to spend 82% of its income on a mortgage for a median-priced existing home.
Other severely burdened markets included:
- San Francisco-Oakland-Fremont, Calif.: 71%
- Urban Honolulu: 70%
- San Diego-Chula Vista-Carlsbad, Calif.: 68%
- Naples-Marco Island, Fla.: 60%
Low-income families in those five markets would need to spend between 121% and 164% of their income to cover a mortgage.
At the other end of the spectrum, Decatur, Ill., ranked as the least cost-burdened market. A typical family there needed 16% of its income for a mortgage on a median-priced existing home.
Other least burdened markets included:
- Elmira, N.Y.: 17%
- Peoria, Ill.: 18%
- Springfield, Ill.: 20%
- Davenport-Moline-Rock Island, Iowa-Ill.: 20%
Low-income families in these markets would have to pay between 31% and 39% of their income to cover the mortgage payment for a median-priced existing home.