Housing affordability took a step backwards in the second quarter, with higher mortgage rates, rising construction costs, and economic uncertainty making homeownership more challenging, according to the National Association of Home Builders (NAHB) and Wells Fargo.
Rising Costs Push Affordability Down
A family earning the national median income of $106,800 needed 34% of its income to cover the mortgage payment on a median-priced new home in the second quarter, up from 32% in the first quarter. For low-income families earning 50% of median income, the percentage rose to 67% from 65%.
Existing homes also became less affordable. A typical family needed 36% of its income to cover the mortgage on a median-priced existing home, up from 32% in the first quarter. Low-income families saw their share rise to 71% from 65% over the same period.
Related: Floor Heating Sales Rise in Q2, Led by Pro Customers
Driving Factors Behind the Downturn
NAHB Chairman Bill Owens attributed the affordability decline to high mortgage rates, economic uncertainty, and construction costs. He noted, “The recently enacted 21st Century ROAD to Housing Act will help address many of these challenges, but implementation will take time.”
Robert Dietz, NAHB’s chief economist, pointed to a nationwide housing shortage as a key factor straining affordability. He said, “Policymakers need to remove regulatory barriers, reduce economic uncertainty, and support a stronger business climate so builders can produce the homes and apartments the nation urgently needs.”
The data reflects a 2% increase in the median price of a new home and a more than 30-basis-point rise in the average mortgage rate. Existing home prices jumped 8% in the second quarter, contributing to the affordability downturn. The mortgage payment is calculated based on median home prices, assuming a 10% down payment, and includes taxes, insurance, and PMI.
Related: How EC Launch Timing Influences Buyer Demand in Singapore
HUD defines cost-burdened families as those who pay more than 30% of their income for housing, and severely cost-burdened families as those paying more than 50%.
Market Variations: Severely Burdened to Least Burdened
The Cost of Housing Index (CHI) breaks down affordability in 175 metropolitan areas. In the second quarter, eight markets saw typical families paying more than 50% of their income on a mortgage, while 77 markets had families paying more than 30%. Ninety markets had a CHI of 30% or lower.
