Increasing home prices and interest rates, combined with higher construction costs, low current inventory, and strong demand, resulted in a dramatic drop in housing affordability in the second quarter of 2023.
According to the NAHB/Wells Fargo Housing Opportunity Index (HOI), 40.5% of new and existing houses sold between the beginning of April and the end of June were affordable to families earning the $96,300 median income in the United States. This is a decrease from the 45.6% recorded in the first quarter of this year, and it is the second-lowest level since the NAHB began measuring affordability on a consistent basis in 2012. The second quarter 2023 HOI reading remained lower than the second quarter 2022 score of 42.8%, highlighting the persistent housing affordability issues.
“While builders continue to face a number of affordability challenges, including a shortage of distribution transformers, elevated construction costs and a lack of skilled workers, they remain cautiously optimistic about market conditions,” noted NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “A lack of existing inventory is fueling demand for new construction, and mortgage rates are expected to stabilize in the weeks and months ahead as the Federal Reserve nears the end of its tightening cycle.”
“Rising mortgage rates in 2023 that peaked near 7% recently have been a major factor in declining affordability conditions,” adds NAHB chief economist Robert Dietz. “Given the Fed’s limited ability to address rising construction costs, the best way to satisfy unmet demand and ease the nation’s housing affordability crisis is to enact policies that will allow builders to construct more homes.”
According to the HOI, the national median home price rose to $388,000 in the second quarter from $365,000 the previous quarter. Nevertheless, the average mortgage rate in the second quarter was 6.59%, up from 6.46% in the first quarter.
The Most and Least Affordable Markets in the Second Quarter
Lansing-East Lansing, Mich., was the most cheap significant housing market in the US, defined as a metro having a population of at least 500,000 people. In the second quarter, 84% of all new and existing homes sold were affordable to families earning the area’s median income of $97,800.
Top five affordable major housing markets:
- Lansing-East Lansing, Mich.
- Scranton-Wilkes-Barre, Pa.
- Harrisburg-Carlisle, Pa.
- Indianapolis-Carmel-Anderson, Ind.
- Pittsburgh, Pa.
Meanwhile, Cumberland, Md.-W.Va., was named the nation’s most cheap small market, with 95.5% of homes sold in the second quarter costing less than $89,900.
Top five affordable small housing markets:
- Cumberland, Md.-W.Va.
- Bay City, Mich.
- Elmira, N.Y.
- Davenport-Moline-Rock Island, Iowa-Ill.
- Utica-Rome, N.Y.
Los Angeles-Long Beach-Glendale, Calif., remained the nation’s least affordable metropolitan housing market for the 11th consecutive quarter. Only 3.2% of homes sold there in the second quarter were affordable to families earning the area’s median income of $97,500.
Top five least affordable major housing markets—all located in California:
- Los Angeles-Long Beach-Glendale
- Anaheim-Santa Ana-Irvine
- San Diego-Chula Vista-Carlsbad
- Oxnard-Thousand Oaks-Ventura
- San Francisco-San Mateo-Redwood City
The Golden State also had the top five least inexpensive small home markets. Salinas, Calif., and San Luis Obispo-Paso Robles, Calif., were tied at the bottom of the affordability chart, with 6.5% of all new and existing homes sold in the second quarter being affordable to families earning the area median income of $100,400 in Salinas and $113,100 in San Luis Obispo-Paso Robles.
Top five least affordable small housing markets—all located in California:
- Salinas
- San Luis Obispo-Paso Robles
- Santa Maria-Santa Barbara
- Napa
- Merced
