U.S. Housing Affordability Hits 18-Month Low on Lack of Supply, Higher Prices

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San Francisco is the nation's least affordable major housing market

According to the latest National Association of Home Builders / Wells Fargo Housing Opportunity Index, despite low interest rates, a supply shortage coupled with rising home prices contributed to a decline in housing affordability in the second quarter of 2020.

In all, 59.6 percent of new and existing homes sold between the beginning of April and end of June were affordable to families earning an adjusted U.S. median income of $72,900. This is down from the 61.3 percent of homes sold in the first quarter of 2020 that were affordable to median-income earners and the lowest reading since the fourth quarter of 2018.

The Department of Housing and Urban Development's original estimates of median family income for 2020 were developed prior to the COVID-19 pandemic. To account for the pandemic's effects, the HUD estimates were reduced consistent with NAHB's economic forecast for 2020. As a result, the 2020 national median income estimates used in the HOI calculations ($72,900) are 7.1 percent lower than the initial national 2020 estimates ($78,500) from HUD.

"There was underbuilding before the pandemic hit, and the coronavirus outbreak has exacerbated the situation by disrupting existing supply chains," said NAHB Chairman Chuck Fowke. "Builders are particularly concerned over surging lumber prices that are up nearly 70 percent since mid-April."  

"Home prices appreciated robustly during the second quarter due to better-than-expected housing demand in the wake of the pandemic and because the coronavirus hindered the ability of builders to ramp up production," said NAHB Chief Economist Robert Dietz. "Looking forward, in this record-low interest rate environment housing should be a bright spot for the economy as rising demand continues in the suburbs, exurbs and other lower density markets."

The HOI shows that the national median home price jumped to a record $300,000 in the second quarter from $280,000 in the previous quarter. Meanwhile, average mortgage rates fell by 27 basis points in the second quarter to 3.34 percent from 3.61 percent in the first quarter.

Scranton-Wilkes Barre-Hazleton, Pa., was rated the nation's most affordable major housing market, defined as a metro with a population of at least 500,000. There, 89.1 percent of all new and existing homes sold in the second quarter were affordable to families earning the area's median income of $66,600. Meanwhile, Cumberland-Md.-W.Va., was rated the nation's most affordable smaller market, with 96.9 percent of homes sold in the second quarter being affordable to families earning the median income of $57,500.

Rounding out the top five affordable major housing markets in respective order were Harrisburg-Carlisle, Pa.; Pittsburgh, Pa.; St. Louis-Mo.-Ill.; and Wilmington, Del.-Md.-N.J.

Smaller markets joining Cumberland at the top of the list included Binghamton, N.Y.; Kokomo, Ind.; Lima, Ohio; and Davenport-Moline-Rock Island, Iowa-Ill.

San Francisco-Redwood City-South San Francisco, Calif., was the nation's least affordable major housing market. There, just 8.5 percent of the homes sold during the second quarter were affordable to families earning the area's median income of $129,200.

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

All five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, where 16.1 percent of all new and existing homes sold in the second quarter were affordable to families earning the area's median income of $75,800.

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