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Rising mortgage rates reduce housing affordability to lowest level in index history

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Rising mortgage rates, higher construction costs, and limited current availability all contributed to housing affordability reaching its lowest level in more than a decade in the third quarter of 2023.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI), only 37.4% of new and existing houses sold between the beginning of July and the end of September were affordable to families earning the national median income of $96,300.

This is a decrease from 40.5% in the second quarter of this year, and it is the lowest level since NAHB began measuring affordability on a consistent basis in 2012.

National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI)

Based on the HOI, the national median home price remained stable in the third quarter at $388,000, unchanged from the previous quarter.

Meanwhile, average mortgage rates increased from 6.59% in the second quarter to 7.13% in the third quarter, the highest rate in the HOI series’ history.

In the third quarter of 2023, the top five most affordable major housing markets were:

  • 1. East Lansing-Lansing, Michigan.
  • 2. Youngstown, Warren, and Boardman, Ohio/Pa.
  • 3. Lancaster-Harrisburg-Carlisle, Pa.
  • 4. Indianapolis, Carmel, and Anderson, Ind.
  • 5. Scranton-Wilkes-Barre/Scranton, Pa.

Top five most expensive major home markets in California:

  • 1. Long Beach-Los Angeles-Glendale
  • 2. Anaheim, Santa Ana, and Irvine
  • 3. San Diego, Chula Vista, and Carlsbad
  • 4. Oxnard, Thousand Oaks, and Ventura
  • 5. Redwood City-San Francisco-San Mateo

Meanwhile, Cumberland, Md.-W.Va., was named the nation’s most cheap small market, with 93.7% of homes sold in the third quarter costing less than $89,900.

The Golden State also had the top five least inexpensive small home markets. Napa, California, was at the absolute bottom of the affordability ranking, with 4.2% of all new and existing homes sold in the third quarter being affordable to families earning the region median income of $129,600.

Jack is one of our correspondents who provide mainly on building industry trend updates.