Nationwide housing affordability falls to lowest level since 2012 due to rising rates
Housing affordability eased in the first quarter, but millions of median-income families remained priced out of the market due to several roadblocks preventing them from buying a home.
About 57% of homes sold in the first quarter were affordable to households earning the US median income of $90,000, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI).
NAHB chairman Jerry Konter described the first-quarter reading – up from 54.2% from the fourth quarter – as a “backward gauge.” He explained that surging interest rates, ongoing building material supply chain constraints, and labor shortages continue to raise construction costs and home prices, pointing to worsening affordability conditions.
The $10,100 year-over-year gain in national median income helped offset the gradual rise in interest rates and the $45,000 increase in the median home price, up to $365,000 in the first quarter.
However, when based on the average mortgage rate of 5.11% in April, nationwide housing affordability plummeted to 48.7 during the first three months of 2022 households – the lowest affordability level recorded since 2012.
According to NAHB, every quarter-point hike in mortgage rates means that 1.3 million households are priced out of the market for a nationwide median-priced home.
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“Looking at current market conditions, affordability woes continue to mount as rising interest rates and home building material costs that are up 20% year-over-year are causing housing costs to rise much faster than wages,” said NAHB chief economist Robert Dietz. “The HOI falling below 50 using these real-time estimates is an indication of significant housing affordability burdens, particularly for frustrated, prospective first-time buyers. The best way to ease growing affordability challenges is for policymakers to address ongoing supply chain disruptions that will allow builders to construct more affordable homes.”