Housing Affordability Declines

Data from the latest National Association of Home Builders (NAHB) Housing Opportunity Index (HOI) shows that housing affordability declined in the third quarter.  The NAHB states that the primary contributing factors for the affordability decline were “strengthening” home prices and rising interest mortgage interest rates.

According to the NAHB, the criteria for the Housing Opportunity Index (HOI) “is a measure of the percentage of homes sold in a given area that are affordable to families earning the area’s median income during a specific quarter.”

On a national basis HOI data reveals that 64.5 percent 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 $64,400.  These stats are a decline from the second quarter of this year when 69.3 percent of new and existing homes sold were affordable to median-income earners; this is the biggest HOI decline since the second quarter of 2004.

NAHB Chairman Rick Judson stated that, “Housing affordability is being negatively affected by a ‘perfect storm’ scenario. With markets across the country recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots and labor.”

Additionally, David Crowe, Chief Economist for NAHB, noted that the decline in affordability was also due to “higher mortgage rates and the more than year-long steady increase in home prices.”  He explains that though affordability has come down from its peak in early 2012, “the index still means a family earning a median income can afford 65 percent of homes recently sold.”  Articulating further he explains that “some of the decline in the affordability index could be the result of a loss in some more modest priced home sales as tight underwriting standards have limited the purchases by moderate income families.”