By taking money out of Americans’ paychecks and creating a housing shortage, the coronavirus delivered a blow to housing affordability. However, in a countertrend that has softened the blow to buyers’ budgets, the pandemic has driven mortgage rates to record lows.
The National Association of Home Builders (NAHB) estimates that median family income for 2020 fell to $72,900 from $75,500 in 2019. “You have a sudden stop for the economy, which means for a lot of buyers, their budget available to buy a home has drastically changed,” says Robert Dietz, NAHB’s chief economist.
As a result of that pay cut, it’s getting harder for Americans to buy homes. Just 58.3 percent of homes sold during the fourth quarter were affordable to families earning a typical income. That was unchanged from the third quarter but down from 63.2 percent in the fourth quarter of 2019, according to the NAHB/Wells Fargo Housing Opportunity Index.
Three factors drive affordability
The builders’ index looks at three variables — incomes, home prices and mortgage rates. The affordability study shows nationwide home prices have spiked in recent months. The median home price rose to a record $320,000 in the fourth quarter, up from $313,000 in the third quarter.
In a trend that offsets some of the affordability squeeze, average mortgage rates fell to a record low of 2.85 percent, down from 3.05 percent in the third quarter, according to the NAHB/Walls Fargo index.
While falling mortgage rates created tailwinds for affordability, there are two major headwinds — layoffs and rising home prices. The U.S. jobless rate jumped to the double digits in the spring. While the labor market has recovered, unemployment remains elevated.
Meanwhile, those who are still employed are driving home prices higher. Bidding wars have broken out in many areas.
“While historically low mortgage rates are helping on the affordability front, there was a significant jump in year-over-year home pricing from 2020 to 2019, as inventory remained lean due to supply chain issues and the COVID-19 pandemic,” NAHB Chairman Chuck Fowke said in a statement.
5 most affordable metro areas
Home prices and incomes vary widely, and there are oases of affordability, mainly in the Rust Belt and Midwest. The top five most affordable places among metro areas with population of 500,000 or more:
Lansing, Michigan: As a result of modest home prices, 89.9 percent of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $75,000. The median home price was $150,000 in the fourth quarter.
Pittsburgh: This metro area has a median family income of $77,100 and a median home price of just $160,000. As a result, 88.3 percent of homes were affordable for typical earners.
Harrisburg-Carlisle, Pennsylvania: With a median family income of $79,000 and a median home price of $180,000, fully 89.2 percent of homes were in reach of median-income families.
Scranton-Wilkes Barre-Hazleton, Pennsylvania: Wages here are below national levels, but so are home prices — the median sale price was just $134,000 in the fourth quarter of 2020. As a result of rock-bottom prices, fully 88 percent of all new and existing homes sold in July, August and September were affordable to families earning the area’s median income of $66,600, NAHB says.
St. Louis: This metro area has a median family income of $77,000 and a median home price of just $169,000. As a result, 86.9 percent of homes were affordable for typical earners.
5 least affordable areas
At the opposite end of the affordability spectrum, California dominates. The nation’s least-affordable markets:
Los Angeles-Long-Beach-Glendale: In a market with a median home price of $720,000, LA’s median income of just $71,800 doesn’t go far. As a result, only 9.1 percent of homes were affordable for typical families. Los Angeles edged out San Francisco as the least affordable market during the final three months of the year.
San Francisco-Redwood City-South San Francisco: Incomes are high here — the median is $129,200. Prices are even higher — the typical home went for $1.35 million, down from $1.41 million in the third quarter. That translates to just 11 percent of homes sold during the autumn months falling in the range of affordability for families earning the area’s median income.
Anaheim-Santa Ana-Irvine: Orange County’s incomes are high: The typical family makes $95,700 this year. But home prices are higher, at a median of $800,000. That means just 14.3 percent of homes are in reach of average families.
San Diego-Carlsbad: San Diego has a median family income of $86,100 and a median home price of $649,000, translating to just 19.1 percent of homes falling in the typical buyer’s budget.
San Jose: Silicon Valley’s median family income is a healthy $131,500, but the typical home sold for $1.11 million. That meant 22 percent of homes sold were affordable.
Housing affordability has been an ongoing challenge in California and other areas that have seen strong demand and little new building since the Great Recession.