Housing affordability rose modestly in the first quarter of this year on the back of rising wages and steadying home prices, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).
Of new and existing homes sold between January and March, 60.3% were affordable to households earning the national average median income (AMI) of $68,000, compared to 59.9% of homes similarly affordable in Q4 2016. The median U.S. home price dropped $5,000 from Q4 2016 to $245,000 in Q1 2017, while the average mortgage rate rose from 3.84% to 4.33% during the period.
- In the most affordable major market — Youngstown-Warren-Boardman, OH-PA — 92.7% of new and existing homes sold in Q1 were affordable to households earning the AMI of $54,600. Kokomo, IN, was the most affordable small market with 96.3% of homes sold affordable to households earning AMI of $62,500.
Housing across the U.S. registered as more affordable during Q1 in part because employment and wage growth are picking back up. Still, headwinds facing the market, from the persisting lot and labor shortage, to increasing material prices, are contributing to the general trend of elevated home prices nationwide.
The latest S&P CoreLogic Case-Shiller U.S. National Home Price Index showed home prices rising at an annual rate of 5.8% in February, the biggest increase in 32 months. Consumers aren’t expecting that growth to slow, with 61% of U.S. adults predicting home prices will continue their upward trajectory in the coming 12 months, up from 55% who said the same last year.
California continues to be home to the nation's least-affordable major housing markets, with the San Francisco Bay Area claiming the top spot for the 18th-straight quarter on the NAHB’s HOI, followed by Los Angeles, San Diego and San Jose. These markets have seen some of the biggest post-recession recoveries among U.S. metros, and, more recently, some of the biggest returns on investment for home-sellers there in nearly a decade. That’s due in part to the severity of the market crash there and the presence of the burgeoning Silicon Valley tech scene to aid recovery.
Meanwhile, markets in the Midwest and Rust Belt are beginning to bounce back following a decline in their manufacturing economy. While cities like Kokomo, IN, and Youngstown, OH, may be affordable to homebuyers, they lack considerable employment to draw outsiders in big numbers. Still, that could change as companies relocate or start up operations in nearby cities like Cleveland, Chicago, Buffalo, NY, and Pittsburgh.
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