By creating a housing shortage, the coronavirus delivered a blow to housing affordability. However, in a countertrend that softened the blow to buyers’ budgets, the pandemic also drove mortgage rates to record lows.
Now, though, mortgage rates are rising, and home prices have soared at a record pace over the past year. The National Association of Home Builders estimates the median price of all new and existing homes sold in the U.S. rose to a record $365,000 in the first three months of 2022.
As a result of skyrocketing prices and a spike in mortgage rates, Americans face an affordability squeeze. While 56.9 percent of homes sold during the first quarter were affordable to families earning a typical income, that number doesn’t accurately reflect the reality of mortgage rates, the NAHB acknowledged.
Before the recent housing boom, affordability conditions weren’t so daunting. The NAHB/Wells Fargo Housing Opportunity Index affordability index number says fully 66 percent of homes were in reach of typical buyers in the first quarter of 2020, the onset of the pandemic.
3 factors drive affordability
The builders’ index looks at three variables: incomes, home prices and mortgage rates. The affordability study shows nationwide home prices remain high. The median home price posted yet another record in the first quarter.
In a trend that tightens the affordability squeeze, average mortgage rates rose to 3.86 percent in the first quarter, up from 3.16 percent in the fourth quarter of 2021. But NAHB says that if it calculated affordability based on late April’s mortgage rates of 5.11 percent instead of the first quarter average of 3.86 percent, just 48.7 percent of homes would have been affordable to typical workers.
While falling mortgage rates had created tailwinds for affordability, that trend has reversed. Meanwhile, wages are rising fast — median income jumped to $90,000 this year from $79,900 last year, according to the index, a 13 percent climb. But home prices are rising faster than paychecks, according to the index.
The pandemic has created another unintended consequence: Prices of building materials have soared.
“Ongoing building material supply chain constraints and labor shortages continue to raise construction costs and put upward pressure on home prices,” National Association of Home Builders Chairman Jerry Konter 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 a population of 500,000 or more:
Lansing, Michigan: As a result of modest home prices, 92.3 percent of all new and existing homes sold in the fall months were affordable to families earning the area’s median income of $89,500. The median home price was $136,000 in the first quarter of 2022, the builders’ index says.
Indianapolis: This metro area has a median family income of $94,100 and a median home price of $204,000. As a result, 89.9 percent of homes were affordable for typical earners.
Scranton-Wilkes Barre-Hazleton, Pennsylvania: Wages here are below national levels, but so are home prices — the median sale price was $145,000. As a result of rock-bottom prices, 89.2 percent of all new and existing homes sold the first quarter were affordable to families earning the area’s median income of $74,100.
Rochester, New York: This metro area has a median family income of $91,500 and a median home price of just $162,000. As a result, 87.4 percent of homes were affordable for typical earners.
Dayton, Ohio: With a median family income of $84,100 and a median home price of $160,000, fully 86.8 percent of homes were in reach of median-income families.
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 $825,000, LA’s median income of just $90,100 doesn’t go far. As a result, only 8.3 percent of homes were affordable for typical families.
Anaheim-Santa Ana-Irvine: Orange County’s incomes are high: The typical family makes $120,200 this year. But home prices are higher, at a median of $995,000. That means just 11.7 percent of homes are in reach of average families.
San Francisco-Redwood City-South San Francisco: Incomes are high here — the median is $163,800. Prices are even higher — the typical home went for $1.49 million. That translates to just 14.4 percent of homes sold during the winter months falling in the range of affordability for families earning the area’s median income.
San Diego-Carlsbad: San Diego has a median family income of $106,900 and a median home price of $783,000, translating to just 14.6 percent of homes falling in the typical buyer’s budget.
Stockton, California: This area’s median family income is $85,000, below national levels, but the typical home sold for $550,000. That meant 21.3 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.