Housing affordability slips for fourth consecutive quarter

Los Angeles area is rated least affordable
Inman News
Nationwide housing affordability slipped for a fourth consecutive quarter to its lowest level yet, according to the National Association of Home Builders'/Wells Fargo Housing Opportunity Index released today.

"The latest HOI shows that only 41 percent of new and existing homes that were sold during the final quarter of 2005 were affordable to families earning the national median income," said David Pressly, a home builder from Statesville, N.C.

That index level is down from 43.2 percent of homes sold in the third quarter and 52 percent of homes sold in fourth-quarter 2004.

Indianapolis was the most affordable housing market in the fourth quarter, with homes selling at a median price of $120,000 and households earning a median income of $64,000.

The least affordable market rated by the index was Los Angeles-Long Beach-Glendale, Calif., where 2.3 percent of homes sold in the fourth quarter were affordable to families earning the area's median household income of $54,500, according to the index.

The median price of all homes sold in that area was an even $500,000. The bottom of the affordability scale was dominated, as usual, by California cities, including Santa Ana-Anaheim-Irvine, San Diego-Carlsbad-San Marcos, and Stockton. New York-White Plains-Wayne, N.Y.-N.J. rounded out the list of the five least affordable major housing markets.

Among cities smaller than 500,000 people, Merced, Calif., was lowest on the list and the second least affordable market overall. Other small cities in the unaffordable column included Modesto, Salinas, Santa Barbara-Santa Maria, and Santa Cruz-Watsonville, Calif.

Pressly stated that the housing affordability situation should improve, as mortgage rates are expected to peak later this year and home-price appreciation is expected to decelerate from the record rates of the last several years. "This will give incomes a chance to catch up."

He added, "Between the third and fourth quarters of last year, the national weighted interest rate on fixed- and adjustable-rate mortgages that we use in calculating the HOI rose from 5.84 percent to 6.21 percent, and this certainly increased the threshold for families seeking home ownership," said NAHB Chief Economist David Seiders. "Meanwhile, nationwide home prices were on a strong upward trajectory through 2005."

NAHB forecasts predict that the average rate on a 30-year, fixed-rate mortgage will inch up gradually to about 6.6 percent late in 2006 and average about 6.5 percent for the year as a whole.

In the nation's most affordable major housing market of Indianapolis, Ind., 88.7 percent of new and existing homes that were sold in the fourth quarter were affordable to households earning the area's median income of $64,000. The median sales price of all Indianapolis homes sold in that time frame was $120,000. Also near the top of the list for affordable major metros were Youngstown-Warren-Boardman, Ohio-Pa., followed by Detroit-Litonia-Dearborn, Mich.; Grand Rapids-Wyoming, Mich.; and Dayton, Ohio, in that order.

Midwestern metros also dominated the list of the most affordable small housing markets with fewer than 500,000 people. Davenport-Moline-Rock Island, Iowa-Ill. was tops, followed by the metro areas of Cumberland, Md.-W.V.; Lima, Ohio; Mansfield, Ohio; and Lansing-East Lansing, Mich.

The index is a measure of the percentage of homes sold in a given area that are affordable to families earning that area's median income during a specific quarter.

The index incorporates newly revised U.S. Housing and Urban Development Department data for household income, which was previously underestimated in some markets, and revised property tax and insurance data in several metro markets, the trade group announced.

Prices of new and existing homes sold are collected from actual court records by First American Real Estate Solutions, a marketing company. Mortgage financing conditions incorporate interest rates on fixed-rate and adjustable-rate loans reported by the Federal Housing Finance Board.

The association's Web site, www.nahb.org/hoi offers more tables, historic data and details.

The National Association of Home Builders has about 225,000 members involved in home building, remodeling, multifamily construction, property management, subcontracting, design, housing finance, building product manufacturing and other aspects of residential and light commercial construction.