Housing Affordability Remains Near Historic Low Level

Mortgage rates that hit more than a 20-year high, coupled with elevated construction costs and excessive regulatory costs, left housing affordability in the fourth quarter of 2023 virtually unchanged from the previous quarter and holding near its lowest level in more than a decade.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI), just 37.7% 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 $96,300. This is nearly identical to the 37.4% posted in the third quarter of last year, which was the lowest reading since NAHB began tracking affordability on a consistent basis in 2012.

The fourth quarter also marks the final report of the long-running HOI series. Replacing the HOI in the first quarter of this year will be a new housing affordability index from NAHB called the Cost of Housing Index (CHI), a quarterly analysis of housing costs in the U.S. and metropolitan areas. The CHI represents the share of a typical family’s income needed to make a mortgage payment. A low-income CHI will also be produced for families earning only 33% of the area’s median income.

“Affordability conditions should show some gradual improvement this year, as mortgage rates peaked in the fourth quarter of 2023 and are now well below 7%,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “But even as lower interest rates track with our latest builder surveys that indicate an upturn in builder confidence in the single-family market, affordability conditions will remain challenging as builders contend with a high-cost regulatory environment and a chronic shortage of workers and buildable lots.”

“Even as overall inflation continues to moderate, shelter costs continue to put upward pressure on inflation, accounting for more than half the inflation gains in the latest Consumer Price Index,” said NAHB Chief Economist Robert Dietz. “The best way to tame shelter inflation and address America’s housing affordability challenges is to enact policies that reduce regulatory costs to help builders increase the supply of housing.”

The HOI shows that the national median home price was $375,000 in the fourth quarter, down from $388,000 in the third quarter. Meanwhile, average mortgage rates increased more than 30 basis points from 7.13% in the third quarter up to 7.44% in the fourth quarter—the highest rate in the HOI series history.

The Most and Least Affordable Markets in the Fourth 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, 79.3% of all new and existing homes sold in the fourth quarter were affordable to families earning the area’s median income of $97,800.

Top five affordable major housing markets:

1. Lansing-East Lansing, Mich.
2. Harrisburg-Carlisle, Pa.
3. Indianapolis-Carmel-Anderson, Ind.
4. Dayton-Kettering, Ohio
5. Akron, Ohio

Meanwhile, Bay City, Mich., was rated the nation’s most affordable small market, with 88.3% of homes sold in the fourth quarter being affordable to families earning the median income of $82,300.

Top five affordable small housing markets:

1. Bay City, Mich.
2. Elmira, N.Y.
3. Davenport-Moline-Rock Island, Iowa-Ill.
4. Cumberland, Md.-W.Va.
5. Springfield, Ohio

For the 13th 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 fourth 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:

1. Los Angeles-Long Beach-Glendale
2. Anaheim-Santa Ana-Irvine
3. San Diego-Chula Vista-Carlsbad
4. Oxnard-Thousand Oaks-Ventura
5. 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 Santa Maria-Santa Barbara, Calif., where 5.2% of all new and existing homes sold in the fourth quarter were affordable to families earning the area median income of $107,300.

Top five least affordable small housing markets—all located in California:

1. Santa Maria-Santa Barbara
2. San Luis Obispo-Paso Robles
3. Napa
4. Salinas
5. Merced

Please visit nahb.org/hoi for tables, historic data and details.