Housing affordability hits eight-year low in Q4 2016

Dive Brief:

  • Housing affordability hit its lowest level in eight years during the fourth quarter of 2016, due primarily to climbing home prices, lingering lot and labor shortages, and rising mortgage rates, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

  • Of the new and existing homes sold from October through December, 59.9% were affordable to households bringing in the U.S. median income of $65,700, compared to 61.4% in the prior quarter.

  • The national median home price rose to $250,000 in the fourth quarter from $247,000 in the third quarter, while the average mortgage rate inched up to 3.84% from 3.76% during the period.

Dive Insight:

The latest figures underline growing concerns surrounding the widening affordability gap in the housing market as inventory and labor shortages show no sign of abating in the near-term and home prices and mortgage rates continue to climb.

Overall housing starts dipped 2.6% last month from December, while the single-family sub-category posted a 1.9% gain and building permit authorizations, an indicator of future construction activity, edged up slightly.

The lack of inventory is particularly acute in the entry-level segment of the market and this is raising fears that homeownership is stretching further out of reach for many first-timer buyers.

Although there are major affordability issues affecting many parts of the county, particularly the West Coast, regions like the Midwest remain relatively affordable.

For example, the latest HOI put the Youngstown-Warren-Boardman market, which spans Ohio and Pennsylvania, as the most affordable major housing market in the country. Nine in 10 new and existing homes sold there during the quarter were affordable to families earning the areas median income of $53,900.

However, housing affordability in places like Youngstown and other former industrial centers in the Midwest and Rust Belt regions are more likely a sign of a shift in the local economy as the loss of manufacturing jobs and high foreclosure rates lowered home values while the growth of the alternative energy industry in that region, specifically, is helping it bounce back with a new workforce.

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Filed Under: Residential Building Economy
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