Rising Mortgage Rates Push Housing Affordability to Lowest Level in Index History
Rising mortgage rates, elevated construction costs and limited existing inventory helped push housing affordability in the third quarter of 2023 to its lowest level in more than a decade.
According to the NAHB (NAHB)/Wells Fargo Housing Opportunity Index (HOI), just 37.4% 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 $96,300. This is down from 40.5% posted in the second quarter of this year, and the lowest reading since NAHB began tracking affordability on a consistent basis in 2012.
“Steadily rising interest rates since the beginning of the year are taking a toll on housing affordability by raising housing costs for buyers and increasing the cost of development and construction loans for builders,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “And with mortgage rates currently near 8%, our builder surveys indicate that market conditions will remain challenging through the end of the year, even as the Federal Reserve appears to be done raising interest rates.”
“Rising mortgage rates have clearly been the key cause of declining housing affordability conditions and shelter costs have been the main driver of inflation,” said NAHB Chief Economist Robert Dietz. “And with shelter cost increases driven by a lack of affordable supply and increasing development costs, the best way to tackle America’s growing housing affordability challenges is to enact policies that will allow builders to increase the housing supply.”
The HOI shows that the national median home price held steady at $388,000 in the third quarter, unchanged from the previous quarter. Meanwhile, average mortgage rates jumped from 6.59% in the second quarter up to 7.13% in the third quarter—the highest rate in the HOI series history.
The Most and Least Affordable Markets in the Third Quarter
Lansing-East Lansing, Mich., was the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. There, 79.8% of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $97,800.
Top five affordable major housing markets:
- Lansing-East Lansing, Mich.
- Youngstown-Warren-Boardman, Ohio-Pa.
- Harrisburg-Carlisle, Pa.
- Indianapolis-Carmel-Anderson, Ind.
- Scranton-Wilkes-Barre, Pa.
Meanwhile, Cumberland, Md.-W.Va., was rated the nation’s most affordable small market, with 93.7% of homes sold in the third quarter being affordable to families earning the median income of $89,900.
Top five affordable small housing markets:
- Cumberland, Md.-W.Va.
- Elmira, N.Y.
- Bay City, Mich.
- Davenport-Moline-Rock Island, Iowa-Ill.
- Kokomo, Ind.
For the 12th straight quarter, Los Angeles-Long Beach-Glendale, Calif., remained the nation’s least affordable major housing market. There, just 2.7% of the homes sold during the third quarter were affordable to families earning the area’s median income of $98,200.
Top five least affordable major housing markets—all located in California:
- Los Angeles-Long Beach-Glendale
- Anaheim-Santa Ana-Irvine
- San Diego-Chula Vista-Carlsbad
- Oxnard-Thousand Oaks-Ventura
- San Francisco-San Mateo-Redwood City
The top five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Napa, Calif., where 4.2% of all new and existing homes sold in the third quarter were affordable to families earning the area median income of $129,600.
Top five least affordable small housing markets—all located in California:
- Napa
- Salinas
- Santa Maria-Santa Barbara
- San Luis Obispo-Paso Robles
- Santa Cruz-Watsonville
Please visit nahb.org/hoi for tables, historic data and details.