Housing affordability continued to decline in the third quarter, spurred by rising interest rates and increased prices.
Between July and September, 64.5% of new and existing homes were affordable to families earning the U.S. median income of $64,400, according to a report released Thursday by the National Association of Home Builders. That’s down from 69.3% in the second quarter, marking the steepest decline since Q2 of 2004.
“Housing affordability is being negatively affected by a ‘perfect storm’ scenario,” said NAHB Chairman Rick Judson. “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.”
“The decline in affordability is the result of higher mortgage rates and the more than year-long steady increase in home prices,” said 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.”
The Indianapolis-Carmel, Ind., area was tied with Syracuse, N.Y., as the nation’s most affordable major markets, where more than 93% of all new and existing homes sold in Q3 were affordable to families earning the areas’ median incomes. The most affordable small market in Q3 was Kokomo, Ind., where 96.9% of homes sold were affordable to families earning the area’s median income.
The least affordable major market – for the fourth consecutive quarter, was the San Francisco-San Mateo-Redwood City, Calif., area. In that market, only 16% of the homes sold in the third quarter were affordable to families earning the area’s median income of $101,200.
The five least affordable small markets last quarter were all in California as well. Topping that list was Santa Cruz-Watsonville, where just 20.3% of homes sold in Q3 were affordable to families earning the area’s median income of $73,800.