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Housing affordability ends 2022 at record low

The NAHB is optimistic that affordability will improve in 2023

Housing affordability hit a record low in the fourth quarter of 2022, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index released Thursday.

At the end of the fourth quarter, the index stood at its lowest level since the NAHB began tracking the data on a consistent basis in 2012. Despite this, the NAHB is optimistic that the recent drop in mortgage rates over the past two months might signal that affordability conditions may have reached their low point for this cycle of the housing market.

“Rising mortgage rates, supply chain disruptions, elevated construction costs and a lack of skilled workers and lots all contributed to a declining housing market and worsening affordability conditions going back to the second quarter of last year,” Alicia Huey, the NAHB chairwoman, said in a statement. “But we are anticipating a better affordability climate in the months ahead, with mortgage rates already posting a modest drop since the beginning of the year and expectations that the Federal Reserve will end its latest string of interest rate hikes by the end of the first quarter.”

In the fourth quarter, just 38.1% of new and existing homes sold were affordable to families earning the U.S. median income of $90,000. This is the third consecutive quarterly decline and the third straight quarterly record low for housing affordability since the Great Recession, according to the NAHB.

In the previous quarter, 42.2% of homes sold were affordable to families earning the U.S. median income.

Although the national median home price fell to $370,000 in Q4, this was still the third-highest median price in the history of the NAHB’s series. The all-time high of $390,000 was set in the second quarter of 2022. In addition, Q4 also saw average mortgage rates reach a series high of 6.80%.

“With mortgage rates anticipated to continue to trend lower later this year, affordability conditions are expected to improve, and this will increase demand and bring more buyers back into the market,” Robert Dietz, the NAHB’s chief economist, said in a statement. “Ultimately, the best way to reduce housing costs is for policymakers to put into place the right policies that will allow builders to produce more affordable housing by fixing broken supply chains, easing excessive regulations and ensuring sufficient liquidity in the housing market.”

Indianapolis-Carmel-Anderson, Indiana, topped the list of most affordable major housing markets (population larger than 500,000) in Q4, as 75.9% of all new and existing homes sold during the quarter were affordable to families earning the area’s median income of $94,100.

Rochester, New York, Pittsburgh, Pennsylvania, Toledo, Ohio, and Dayton-Kettering, Ohio rounded out the top five.

The top five least affordable major housing markets in Q4 were all in California and included: Los Angeles-Long Beach-Glendale, Anaheim-Santa Ana-Irvine, San Diego-Chula Vista-Carlsbad, San Francisco-San Mateo-Redwood City, and San Jose-Sunnyvale-Santa Clara. This is the ninth consecutive quarter Los Angeles-Long Beach-Glendale topped the list, with just 2.2% of the homes sold during the fourth quarter being affordable to families earning the metro’s median income of $91,100.

When it came to small markets, Bay City, Michigan was the nation’s most affordable small market in the fourth quarter, with 88.5% of all homes sold in Q4 being affordable to families earning the metro’s median income of $74,800. On the other end of the spectrum, Salinas, California was the least affordable small housing market, with just 5.0% of all homes sold during the fourth quarter being affordable to families earning the area’s median income of $90,100.

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