Housing Affordability Weakens as Challenges Lie Ahead
Housing affordability weakened slightly during the first quarter of 2021 as rising material costs and supply shortages along with expected increases in mortgage rates stemming from a growing economy are likely to exacerbate affordability challenges in the year ahead.
According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, 63.1 percent of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $79,900. This is slightly down from the 63.3 percent of homes sold in the fourth quarter of 2020 that were affordable to households earning the median income of $78,500.
"After a surprising gain for housing affordability in 2020 that was driven by historically low interest rates, housing emerged as a bright spot for the overall economy," says Chuck Fowke, NAHB chairman. "However, the first quarter reading of the HOI is an indication that affordability will further decline this year as higher lumber and other material costs and longer construction times will act as headwinds for the market."
"While economic growth in 2021 will be at the highest growth rate since 1984 and the labor market will continue to improve, higher home prices and an expected rise in interest rates will price some prospective home buyers from the market," says Robert Dietz, NAHB chief economist. "More housing supply is needed to bring home price growth back to sustainable levels."
The HOI shows that the national median home price held steady at $320,000 in the first quarter, unchanged from the fourth quarter. Meanwhile, average mortgage rates increased by 11 basis points in the first quarter to 2.96 percent from the previous all-time low of 2.85 percent in the fourth quarter.