Dive Brief:
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A small drop in mortgage interest rates couldn’t stand up to rising home prices, making housing less affordable during the third quarter, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.
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Regulatory costs, limited lot availability and a continued shortage of skilled workers all contributed to home price appreciation during the period, NAHB Chief Economist Robert Dietz said in a release.
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Of the new and previously owned homes sold from July through September, 61.4% were affordable to households earning the median U.S. income of $65,700, compared to 62% in the previous quarter. The median U.S. home price was $247,000 in the third quarter, up from $240,000 in the second quarter.
Dive Insight:
Rising home prices, triggered largely by tight inventory and pent-up demand following the recession, are often cited by housing economists as the primary barrier to a more consistent, accelerated recovery. Prices were at or above normal levels in nearly all (98%) markets during the third quarter, according to the NAHB/First American Leading Markets Index.
An uptick in sales of previously owned homes is one way to trigger a softening of prices by opening more inventory for first-time buyers. The National Association of Realtors has forecast a "slight increase" in those sales during 2017 as first-timers return to the homebuying market in larger numbers than in recent years.
Elgin, IL, was the most affordable major housing market during the period, with 94.3% of homes sold affordable to residents there, according to the index. Fairbanks, AK, was named the most affordable small market, with locals able to afford 97.7% of homes sold.
The remainder of the affordable major and small markets echo the trend of secondary markets, particularly in the Rust Belt and industrial East Coast, becoming magnets for price-sensitive first-time home buyers. Youngstown-Warren-Boardman, OH-PA.; Scranton-Wilkes-Barre-Hazleton, PA; Indianapolis-Carmel-Anderson, IN; and Syracuse, NY, rounded out the top five major markets. The leading small markets were Monroe, MI; Binghamton, NY; Wheeling, W. VA-OH; and Davenport-Moline-Rock Island, IA.
At the other end of the affordability spectrum were West Coast markets including San Francisco, Los Angeles and San Jose. There, CoreLogic President and CEO Anand Nallathambi said recently, rising prices have created an "affordability crisis." Nationally, home prices were up 6.2% from August 2015 to August 2016, according to the latest CoreLogic Home Price Index.
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