US Housing affordability at lowest level in a decade

By National Association of Home Builders (US)

Soaring construction costs have dropped US housing affordability to its lowest level in a decade.

Supply-chain bottlenecks that put upward pressure on US home prices along with rising interest rates contributed to housing affordability falling to a 10-year low. And ongoing production challenges and the likelihood of higher interest rates in the months ahead as the Federal Reserve moves to tighten interest rates threaten to drive housing affordability even lower in 2022.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) released today, just 54.2% of new and existing homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of USD79 900. This is down from the 56.6% of homes sold in the third quarter of 2021 and is the lowest affordability level recorded since the beginning of the revised series in the first quarter of 2012.

“Supply chain disruptions stemming from labour shortages to lumber to home appliances and other building materials are delaying construction times and contributing to higher home prices,” said NAHB chairman Chuck Fowke, a custom home builder from Tampa, Fla. “Policymakers must focus on addressing these issues to help ease rising construction costs that are contributing to housing affordability headwinds.”

“With the Federal Reserve signalling it will begin raising interest rates in March, mortgage rates are expected to further increase in the coming months, after beginning a steady rise in December,” said NAHB chief economist Robert Dietz. “To help ease growing affordability problems, policymakers must take steps to help builders to increase production to meet strong demand and stem the rapid climb in home prices that has taken place over the past year.”

The HOI shows that the national median home price increased to a record USD360 000 in the fourth quarter, up USD5 000 from the third quarter and a whopping USD40 000 from the first quarter. Meanwhile, average mortgage rates increased by 21 basis points in the fourth quarter to 3.16% from 2.95% in the third quarter. Currently, mortgage rates are running above 3.5%, and this higher trend will further affect affordability later this year.