Housing Affordability Near Two-Year Low Amid Lack of Inventory, Higher Prices

Record-low mortgage rates were not enough to offset inventory shortages and rising home prices as housing affordability continued to decline in the third quarter of 2020, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.  

In all, 58.3 percent of new and existing homes sold between the beginning of July and end of September were affordable to families earning an adjusted U.S. median income of $72,900. This is down from the 59.6 percent of homes sold in the second quarter of 2020 that were affordable to median-income earners and the lowest reading since the fourth quarter of 2018.

"Though low mortgage rates and favorable demographics have helped spur demand, a lack of inventory exacerbated by supply chain issues stemming from the COVID-19 pandemic have contributed to rising home prices," says Chuck Fowke, NAHB chairman. "Surging lumber prices also peaked more than 170 percent above mid-April levels in September, raising building costs. However, lumber prices are now trending lower, which is good news for prospective home buyers."  

"A six-month supply of homes is considered a normal supply and demand balance, and this figure has been running below a four-month rate since July, putting upward pressure on home prices," says Robert Dietz, NAHB chief economist. "As builders look to ramp up production, the work-at-home trend is contributing to a suburban shift, meaning that buyers have additional market power to shop for affordable markets."

The HOI shows that the national median home price jumped to an all-time high of $313,000 in the third quarter, surpassing the previous record-high of $300,000 set in the second quarter. Meanwhile, average mortgage rates fell in the third quarter to a record-low of 3.05 percent from 3.34 percent in the second quarter.