Housing affordability remains historically low: NAHB

Key Takeaways:

– U.S. housing affordability reached a 10-year low at the end of 2023
– Only 37.7% of new and existing homes sold in Q4 2023 were considered affordable
– Construction costs rose and building regulations remained burdensome
– Median home price in Q4 2023 was $375,000, down 3.4% from the previous quarter
– Mortgage rates increased to 7.44%, the highest in the history of the Housing Opportunity Index (HOI)
– Affordability conditions may improve as mortgage rates have decreased below 7%
– Midwest cities dominated the rankings of most affordable housing markets
– Los Angeles was the least affordable major market, with only 2.7% of homes being affordable
– California accounted for all 10 least affordable locations in the country
– The HOI will be replaced by the Cost of Housing Index (CHI) in Q1 2024.

HousingWire:

Mortgages rates reached their highest level since 2000, construction costs rose and building regulations remained burdensome, leaving U.S. housing affordability near a 10-year low point at the end of last year, according to the National Association of Home Builders (NAHB).

According to the fourth-quarter 2023 iteration of the NAHB/Wells Fargo Housing Opportunity Index (HOI), only 37.7% of new and existing homes sold during the final three months of last year were considered affordable to households earning the U.S. median income of $96,300. This figure was virtually unchanged from Q3 2023, which was the lowest on record since NAHB began tracking the metric in 2012.

“Even as overall inflation continues to moderate, shelter costs continue to put upward pressure on inflation, accounting for more than half the inflation gains in the latest Consumer Price Index,” NAHB chief economist Robert Dietz said in a statement. “The best way to tame shelter inflation and address America’s housing affordability challenges is to enact policies that reduce regulatory costs to help builders increase the supply of housing.”

HOI data revealed a U.S. median home price of $375,000 in Q4 2023, down 3.4% from a median of $388,000 in the prior quarter.

Meanwhile, average mortgage rates, according to Freddie Mac’s Primary Mortgage Market Survey, increased from 7.13% in the third quarter to 7.44% in the fourth quarter — the highest rate in the history of the HOI.

“Affordability conditions should show some gradual improvement this year, as mortgage rates peaked in the fourth quarter of 2023 and are now well below 7%,” NAHB Chairman Alicia Huey said in a statement.

“But even as lower interest rates track with our latest builder surveys that indicate an upturn in builder confidence in the single-family market, affordability conditions will remain challenging as builders contend with a high-cost regulatory environment and a chronic shortage of workers and buildable lots.”

The Midwest dominated NAHB’s rankings of the nation’s most affordable housing markets at the end of last year. Lansing, Michigan, was judged as the most affordable major market (defined as metro areas with a population of at least 500,000). It was followed by Harrisburg, Pennsylvania; Indianapolis; and the Ohio markets of Dayton and Akron.

Bay City, Michigan, led the way for affordability among all small markets. It was followed by Elmira, New York; Davenport, Iowa; Cumberland, Maryland; and Springfield, Ohio.

The Los Angeles metro area earned the dubious distinction as the least affordable major market in the U.S. for a 13th straight quarter. Only 2.7% of homes sold there in Q4 2023 were affordable to households earning the area median income of $98,000.

California accounted for each of the 10 metros listed among the nation’s least affordable locations, regardless of size, according to NAHB.

The Q4 2023 report marks the end of the long-running HOI series. NAHB will produce a new metric, the Cost of Housing Index (CHI), to replace it in first-quarter 2024.

The CHI is a quarterly analysis of housing expenses on the national and metro levels. The index represents the share of the typical household income needed to make a monthly mortgage payment.

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Property Chomp’s Take:

Have you ever wondered why housing affordability is becoming increasingly challenging in the United States? Well, according to the National Association of Home Builders (NAHB), there are several factors contributing to this issue. In this article, we will explore the key findings of the NAHB’s latest report and discuss the implications for prospective homebuyers.

The NAHB/Wells Fargo Housing Opportunity Index (HOI) for the fourth quarter of 2023 revealed that only 37.7% of new and existing homes sold during that period were considered affordable to households earning the U.S. median income of $96,300. This figure remained virtually unchanged from the previous quarter and is the lowest on record since 2012 when the NAHB began tracking the metric.

One of the significant factors impacting housing affordability is the rise in mortgage rates. According to Freddie Mac’s Primary Mortgage Market Survey, average mortgage rates increased from 7.13% in the third quarter to 7.44% in the fourth quarter of 2023. This is the highest rate in the history of the HOI and poses a challenge for potential homebuyers.

In addition to rising mortgage rates, construction costs have also been on the rise. This further adds to the burden of affordability for homebuyers. Moreover, building regulations have remained cumbersome, making it difficult for builders to meet the demand for affordable housing.

NAHB chief economist Robert Dietz stated that shelter costs account for more than half of the inflation gains in the latest Consumer Price Index. He emphasized that reducing regulatory costs and increasing the supply of housing through policy changes is crucial to addressing these affordability challenges.

Despite the challenges, there is some hope for improvement. NAHB Chairman Alicia Huey mentioned that mortgage rates have peaked and are now below 7%, which should gradually improve affordability conditions. However, builders still face obstacles such as a high-cost regulatory environment and a shortage of workers and buildable lots.

When it comes to regional affordability rankings, the Midwest emerged as the most affordable region in the country. Lansing, Michigan, was ranked as the most affordable major market, followed by Harrisburg, Pennsylvania, Indianapolis, and the Ohio markets of Dayton and Akron. On the other hand, the Los Angeles metro area retained its position as the least affordable major market for the 13th consecutive quarter.

Interestingly, California accounted for all ten metros listed among the nation’s least affordable locations, regardless of size. This highlights the affordability challenges specific to the state.

It is worth noting that the Q4 2023 report marks the end of the HOI series. NAHB will introduce a new metric, the Cost of Housing Index (CHI), in the first quarter of 2024. The CHI will provide a quarterly analysis of housing expenses on national and metro levels, representing the share of the typical household income needed to make a monthly mortgage payment.

In conclusion, housing affordability in the United States reached a 10-year low point at the end of 2023. Rising mortgage rates, increasing construction costs, and burdensome building regulations have contributed to this challenge. While there may be some gradual improvement in affordability conditions, addressing regulatory costs and the shortage of workers and buildable lots is crucial for long-term solutions. The introduction of the Cost of Housing Index will provide a new perspective on housing expenses and enable policymakers to make informed decisions to tackle the affordability crisis.

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