Mortgage rates above 7%, elevated construction costs and limited existing inventory helped push housing affordability to its lowest level in more than a decade during the third quarter according to he National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI).
Only 37.4% of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $96,300, according to the report. This is down from 40.5% posted in the second quarter and the lowest reading since NAHB began tracking affordability on a consistent basis in 2012.
“Steadily rising interest rates since the beginning of the year are taking a toll on housing affordability by raising housing costs for buyers and increasing the cost of development and construction loans for builders,” says Alicia Huey, chairman of NAHB. “And with mortgage rates currently near 8%, our builder surveys indicate that market conditions will remain challenging through the end of the year, even as the Federal Reserve appears to be done raising interest rates.”
“Rising mortgage rates have clearly been the key cause of declining housing affordability conditions and shelter costs have been the main driver of inflation,” adds Robert Dietz, chief economist for NAHB. “And with shelter cost increases driven by a lack of affordable supply and increasing development costs, the best way to tackle America’s growing housing affordability challenges is to enact policies that will allow builders to increase the housing supply.”
The report shows that the national median home price held steady at $388,000 in the third quarter, unchanged from the previous quarter.
Meanwhile, average mortgage rates jumped from 6.59% in the second quarter up to 7.13% in the third quarter—the highest rate in the report’s history.
Photo: Grahame Jenkins