by NAHB report says this is related to a more than 30-basis-point rise in the average mortgage rate and a 2% increase in the median price of a new home
WASHINGTON — Housing affordability challenges remain a factor in the marketplace as people are needing to spend more of their income to purchase new and existing homes.
According to the National Association of Home Builders/Wells Fargo Cost of Housing Index for the second quarter, a family earning the nation’s median income of $106,800 would need 34% of its income to cover a mortgage payment on a median-priced new home costing $410,700.
Low-income families, including those who earn only 50% of the median income, would need to spend 67% of their income to pay for the same home.
The study noted that figures are higher for the purchase of existing homes in the U.S. For example, a family earning the median income would need to set aside 36% of their income for a median-priced home. That rises to 71% for a low-income family only making half the median income.
This compares with first-quarter results of 32% for a family earning the median income for a new home and 65% for low-income families. The figures were the same for those purchasing an existing home.
NAHB officials noted that the change in new home affordability was driven by a more than 30-basis-point rise in the average mortgage rate and a 2% increase in the median price of a new home. Meanwhile, the change in affordability for an existing home was driven by what the authors of the study described as a sharp increase in median home prices from the first to second quarter. Prices of existing homes, they noted, rose from $404,300 in the first quarter to $434,900 in the second quarter.
“Housing affordability weakened for both new and existing homes in the second quarter, driven by several factors,” said NAHB Chairman Bill Owens, a homebuilder and remodeler from Worthington, Ohio. “Buyers faced high mortgage rates and economic uncertainty, while builders dealt with rising construction costs, unnecessary regulatory burdens and labor shortages. The recently enacted 21st Century ROAD to Housing Act will help address many of these challenges, but implementation will take time.”
NAHB Chief Economist Robert Dietz said that a nationwide housing shortage of about 1.2 million units continues to strain affordability.
“The latest CHI data show that too many households remain cost burdened,” he noted. “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 results have implications for spending on furniture and other amenities such as appliances. The report noted that HUD defines cost-burdened families as those “who pay more than 30% of their income for housing.” Those who are severely cost burdened would be defined as paying more than 50% of their income on housing.
Thus, even sharpened price points might not be enough to help cost-burdened and severely cost-burdened consumers to afford furniture as they are dealing with a host of other monthly bills ranging from car payments to student loans, not to mention property taxes and homeowners insurance.
In eight of 175 markets included in the second-quarter analysis, the report noted that the typical family is severely cost-burdened, paying more than 50% of their income on a median-priced existing home. In 77 other markets, such families are cost-burdened (needing to pay between 31% and 50%), while it identified 90 markets where the CHI is 30% of earnings or less.
The study went on to identify some of the most cost-burdened housing markets and those that are the least cost-burdened.
The Top 5 Severely Cost-Burdened Markets
San Jose-Sunnyvale-Santa Clara, California, was the most severely cost-burdened market on the CHI, where 82% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by:
+ San Francisco-Oakland-Fremont, California (71%)
+ Urban Honolulu, Hawaii (70%)
+ San Diego-Chula Vista-Carlsbad, California (68%)
+ Naples-Marco Island, Florida (60%)
Low-income families would have to pay between 121% and 164% of their income in all five of the above markets to cover a mortgage.
The Top 5 Least Cost-Burdened Markets
By contrast, Decatur, Illinois, was the least cost-burdened market on the CHI, where typical families needed to spend just 16% of their income to pay for a mortgage on an existing home. Rounding out the least burdened markets are:
+ Elmira, New York (17%)
+ Peoria, Illinois (18%)
+ Springfield, Illinois (20%)
+ Davenport-Moline-Rock Island, Iowa-Illinois (20%)
Low-income families in these markets would have to pay between 31% and 39% of their income to cover the mortgage payment for a median-priced existing home.
