Housing affordability weakened slightly during the first quarter of 2021, according to the latest report from the National Association of Home Builders and Wells Fargo Housing Opportunity Index.
63.1% 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 — slightly down from the 63.3% 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,” said NAHB Chairman Chuck Fowke. “However, the first quarter reading of the HOI is an indication that housing affordability will further decline this year as higher lumber and other material costs and longer construction times will act as headwinds for the market.”
The NAHB said in April that lumber prices have tripled over the past 12 months and have caused the price of an average new single-family home to increase by $35,872 — up from $24,000 extra that NAHB reported back in March. The hike has also added nearly $13,000 to the market value of an average new multifamily home, which translates into households paying $119 a month more to rent a new apartment, the NAHB said.
Rising prices can be traced back to the onset of the COVID-19 pandemic in the U.S. The shutdown of a large swath of lumber mills in early 2020 handcuffed homebuilding crews all over the country and forced home prices upward as inventory dwindled.
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Then, mortgage rates dropped below 3%, giving prospective homebuyers ammunition to continue shopping — even during the pandemic. Suddenly, any and all homes for sale were being snatched up, and builders couldn’t keep up. Prices, unfortunately, didn’t wait for them to.
The report also noted that average mortgage rates increased by 11 basis points in the first quarter of 2021 to 2.96% from the previous all-time low of 2.85% in the fourth quarter of 2020. The national median home price held steady at $320,000 in the first quarter, unchanged from the fourth quarter.
The revised HOI for 2020 reflect last year’s estimates for median family income published by the Department of Housing and Urban Development prior to the COVID-19 pandemic, and to account for the pandemic’s effects, the NAHB in March of 2020 adjusted HUD’s median income estimates lower.
“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,” said NAHB Chief Economist Robert Dietz. “More housing supply is needed to bring home price growth back to sustainable levels.”
In looking at specific markets, Lansing-East Lansing, Michigan, was the nation’s most affordable major housing market with a population of at least 500,000. 91.8% of all new and existing homes sold in in Lansing-East Lansing in the first quarter of 2021 were affordable to families earning the area’s median income of $79,100.
The other top five affordable major housing markets were Pittsburgh, Pennsylvania, Youngstown-Warren-Boardman, Ohio, Scranton-Wilkes-Barre-Hazleton, Pennsylvania, and Harrisburg-Carlisle, Pennsylvania.
As far as smaller markets were concerned, Cumberland, Maryland, was rated the nation’s most affordable smaller market, with 97.5% of homes sold in the first quarter being affordable to families earning the median income of $60,800. Other affordable small markets included Fairbanks, Alaska, Monroe, Michigan, Wheeling, West Virginia, and California-Lexington Park, Maryland.
Los Angeles-Long Beach-Glendale, California, remained the nation’s least affordable major housing market, with just 11.6% of the homes sold during the first quarter affordable to families earning the area’s median income of $78,700. Other California markets rounded out the top five least affordable major markets — San Francisco, Redwood City, Anaheim, San Diego, and Oxnard.
Four of the five least affordable small housing markets were also in California, starting with Salinas, where only 15.1% of all new and existing homes sold in the first quarter were affordable to families earning the area’s median income of $80,900.
Other small markets at the lowest end of affordability included Corvallis, Oregon, Napa, California, San Luis, California, and and Santa Cruz, California.
