Housing Affordability Remains at Near Historic Low

The latest Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) from the National Association of Home Builders finds that home affordability remains at a near record low as of Q4 2023.

The report attributes this to elevated mortgage rates, high construction costs as well as excessive regulatory costs.

37.7% of new and existing homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $96,300. This is nearly identical to the 37.4% posted in the third quarter of last year, which was the lowest reading since NAHB began tracking affordability in 2012.

The national median home price was $375,000 in Q4 2023, down from $388,000 in the third quarter. Meanwhile, average mortgage rates increased more than 30 basis points from 7.13% in the third quarter up to 7.44% in the fourth quarter—the highest rate in the HOI series history.

Regional breakdown

The most affordable large markets in the quarter, all in the Midwest, were:

  1. Lansing-East Lansing, Michigan
  2. Harrisburg-Carlisle, Pennsylvania
  3. Indianapolis-Carmel-Anderson, Indiana 
  4. Dayton-Kettering, Ohio 
  5. Akron, Ohio

The most affordable small housing markets were:

  1. Bay City, Michigan
  2. Elmira, New York
  3. Davenport-Moline-Rock Island, Iowa-Illinois
  4. Cumberland, Maryland-West Virginia
  5. Springfield, Ohio

The least affordable large housing markets, all in California, were:

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

The least affordable small housing markets were also all located in California:

  1. Santa Maria-Santa Barbara
  2. San Luis Obispo-Paso Robles
  3. Napa
  4. Salinas
  5. Merced

Expert takeaways:

“Affordability conditions should show some gradual improvement this year, as mortgage rates peaked in the fourth quarter of 2023 and are now well below 7%,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “But even as lower interest rates track with our latest builder surveys that indicate an upturn in builder confidence in the single-family market, affordability conditions will remain challenging as builders contend with a high-cost regulatory environment and a chronic shortage of workers and buildable lots.”

“Even as overall inflation continues to moderate, shelter costs continue to put upward pressure on inflation, accounting for more than half the inflation gains in the latest Consumer Price Index,” said NAHB Chief Economist Robert Dietz. “The best way to tame shelter inflation and address America’s housing affordability challenges is to enact policies that reduce regulatory costs to help builders increase the supply of housing.”

This report is the final entry in the HOI series, replaced with a new index called the Cost of Housing Index (CHI), debuting at the end of Quarter 1 2024.

For the full report, click here.

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