Housing Affordability in U.S. Edges Lower in Q3

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According to the National Association of Home Builders / Wells Fargo Housing Opportunity Index (HOI) released this week, ongoing U.S. home price appreciation offset a small decline in mortgage interest rates to move housing affordability slightly lower in the third quarter of 2016.

"Historically low interest rates and firming job growth are positive indicators that housing markets across the nation will continue to gradually improve," said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. "Home prices, however, continue to be affected by the rising costs of construction, both in terms of land and labor."

"Regulatory restraints along with shortages of buildable lots and skilled workers are adding to the cost of new homes, which is putting upward pressure on home prices," said NAHB Chief Economist Robert Dietz. "Though these factors have negatively affected the marketplace, affordability still remains positive. Moreover, attractive mortgage rates, rising incomes and growing household formations make this an excellent time to buy."

In all, 61.4 percent of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $65,700. This is down from the 62 percent of homes sold that were affordable to median-income earners in the second quarter.

The national median home price increased from $240,000 in the second quarter to $247,000 in the third quarter. Meanwhile, average mortgage rates edged lower from 3.88 percent to 3.76 percent in the same period.

Elgin, Ill., was rated the nation's most affordable major housing market, where 94.3 percent of all new and existing homes sold in this year's third quarter were affordable to families earning the area's median income of $82,500. Meanwhile, Fairbanks, Alaska, was rated the nation's most affordable smaller market, with 97.7 percent of homes sold in the third quarter being affordable to families earning the median income of $93,800.

Rounding out the top five affordable major housing markets in respective order were Youngstown-Warren-Boardman, Ohio-Pa.; Scranton-Wilkes-Barre-Hazleton, Pa.; Indianapolis-Carmel-Anderson, Ind.; and Syracuse, N.Y.

Smaller markets joining Fairbanks at the top of the list included Monroe, Mich.; Binghamton, N.Y.; Wheeling, W.Va.-Ohio; and Davenport-Moline-Rock Island, Iowa-Ill.

For the 16th consecutive quarter, San Francisco-Redwood City-South San Francisco, Calif., was the nation's least affordable major housing market. There, just 9.7 percent of homes sold in the third quarter were affordable to families earning the area's median income of $104,700.

Other major metros at the bottom of the affordability chart were located in California. In descending order, they included Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and Santa Rosa.

Four of the five least affordable small housing markets were also in California. At the very bottom of the affordability chart was Salinas, where 17.6 percent of all new and existing homes sold were affordable to families earning the area's median income of $63,500.

In descending order, other small markets at the lowest end of the affordability scale included Santa Cruz-Watsonville; Napa; San Luis Obispo-Paso Robles-Arroyo Grande; and Kahului-Wailuku-Lahaina, Hawaii.