Housing affordability plunges on soaring material costs, rising home prices

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Soaring building material costs, high demand and low inventory have added tens of thousands of dollars to the price of a new home and caused housing affordability to fall to its lowest level in nearly a decade during the second quarter of 2021.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) released today, 56.6 percent of new and existing homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $79,900. This is down sharply from the 63.1 percent of homes sold in the first quarter of 2021 and the lowest affordability level since the beginning of the revised series in the first quarter of 2012.

“Runaway construction cost growth, such as ongoing elevated prices for oriented strand board that has skyrocketed by nearly 500 percent since January 2020, continue to put upward pressure on home prices,” said NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Fla. “Policymakers must address supply chain bottlenecks for building materials that are raising costs and harming housing affordability.”

“Recent NAHB analysis shows that higher costs for lumber products have added nearly $30,000 to the price of an average new single-family home and raised the rental price of a new apartment unit by more than $90,” said NAHB Chief Economist Robert Dietz. “With the U.S. housing market more than 1 million homes short of what is needed to meet the nation’s demand, policymakers need to focus on supply-side solutions that will enable builders to increase housing production and rein in rising home prices.”

The HOI shows that the national median home price surged to a record $350,000 in the second quarter, up $30,000 from the first quarter. This is the largest quarterly price hike in the history of this series. Meanwhile, average mortgage rates increased by 13 basis points in the second quarter to 3.09 percent from the rate of 2.96 percent in the first quarter. However, mortgage rates are currently running at 2.8 percent, which has provided some support for housing demand in recent weeks.

The most and least affordable markets

Pittsburgh, Pa., was the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. In Pittsburgh, 90.6 percent of all new and existing homes sold in the second quarter were affordable to families earning the area’s median income of $84,800.

Rounding out the top five affordable major housing markets in respective order were Lansing-East Lansing, Mich.; Youngstown-Warren-Boardman, Ohio-Pa.; Scranton-Wilkes-Barre-Hazleton, Pa.; and Harrisburg-Carlisle, Pa.

Meanwhile, Cumberland-Md.-W.Va., was rated the nation’s most affordable smaller market, with 94.0 percent of homes sold in the second quarter being affordable to families earning the median income of $60,800. Smaller markets joining Cumberland at the top of the list included Davenport-Moline-Rock Island, Iowa-Ill.; Sierra Vista-Douglas, Ariz.; California-Lexington Park, Md.; and Fairbanks, Alaska.

For the third straight quarter, Los Angeles-Long Beach-Glendale, Calif., remained the nation’s least affordable major housing market. There, just 8.4 percent of the homes sold during the second quarter were affordable to families earning the area’s median income of $78,700.

In fact, the top five least affordable major markets were all located in California. In descending order, San Francisco-Redwood City-South San Francisco; Anaheim-Santa Ana-Irvine; San Diego-Carlsbad; and Oxnard-Thousand Oaks-Ventura rounded out the top five.

Four of the five least affordable small housing markets were also in the Golden State. However, at the very bottom of the affordability chart was Corvallis, Ore., where 7.2 percent of all new and existing homes sold in the second quarter were affordable to families earning the area’s median income of $93,000.

In descending order, other small markets at the lowest end of the affordability scale included Salinas, Calif.; Napa, Calif.; Santa Cruz-Watsonville, Calif.; and San Luis Obispo-Paso Robles-Arroyo Grande, Calif.