Homeowner Affordability Conditions Worsening

Fewer people can afford housing now than ever before and home builders are becoming increasingly concerned about the situation.

While affordability posted a modest gain for average conditions in Q1 2022, according to National Association of Home Builders, it was caused by a strong jump in national median income, which helped to offset a gradual rise in interest rates. 

However, home builders warn of current deteriorating conditions as a sharp jump in mortgage rates in March and April coupled with ongoing building material supply chain disruptions, labor shortages and high inflation drive up housing costs, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

The NAHB/Wells Fargo Housing Opportunity Index issued this week found that 56.9% of new and existing homes sold between the beginning of January and end of March were affordable to families earning the US median income of $90,000.

This represents a slight tick up from Q4 2021’s reading of 54.2%, but current market indicators show affordability conditions worsening.

The Index’s Criteria

The first quarter HOI was calculated based on an average quarterly interest rate of 3.86%, up 70 basis points from the previous quarter; a 2022 median income of $90,000, up from last year’s $79,900; and a national median home price of $365,000, up $5,000 from the fourth quarter of 2021 and a whopping $45,000 from the first quarter of 2021.

Situation ‘Worse’ Today

NAHB reported that based on where the housing market stands today, only 48.7% of homes sold in Q1 were affordable to median-income families, the lowest affordability level recorded on the HOI since the beginning of the revised series in Q1 2012.

“The first quarter reading is a backward gauge, as surging interest rates, ongoing building material supply chain constraints and labor shortages continue to raise construction costs and put upward pressure on home prices,” NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga., said in prepared remarks.

‘State of Emergency’ in Major Cities

Brian A. Sidman, principal and founder, BAS Holdings Investments, tells GlobeSt.com that the current housing market is hitting the country’s workforce families the hardest with major cities experiencing crises or even state of emergencies given the lack of affordability. 

“To ease these challenges, cities and municipalities need to incentivize public private partnerships to encourage the development of workforce or affordable housing by repurposing underutilized land, increasing density and ensuring archaic policies are not restricting equitable housing solutions,” Sidman said.