Housing Affordability Drops to Lowest Level in a Decade as Construction Costs Mount

Rising interest rates and seemingly endless supply chain disruptions are driving up home costs, leading to the lowest affordability level on record, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI). Just 54.2% of new and existing homes sold between the start of October and end of December 2021 were affordable to families earning the U.S. median income of $79,900, down from 56.6% of homes sold during the third quarter of 2021.

The national median home price increased to a record $360,000 in the fourth quarter of 2021 after gradual increases throughout the first three quarters of the year, and average Q4 mortgage rates also rose to 3.16%, up by 21 basis points from the previous quarter. As mortgage rates continue to surge and homebuyers compete for an inadequate supply of homes, prices will keep rising late into 2022, NAHB’s Eye on Housing reports.

The HOI shows that the national median home price increased to a record $360,000 in the fourth quarter, up $5,000 from the third quarter and a whopping $40,000 from the first quarter. Meanwhile, average mortgage rates increased by 21 basis points in the fourth quarter to 3.16% from 2.95% in the third quarter. Currently, mortgage rates are running above 3.5%, and this higher trend will further affect affordability later this year.

Lansing-East Lansing, Mich. was the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. There, 90.6% of all new and existing homes sold in the fourth quarter were affordable to families earning the area’s median income of $79,100.

Meanwhile, Cumberland, Md.-W.Va. was rated the nation’s most affordable small market, with 94% of homes sold in the fourth quarter being affordable to families earning the median income of $60,800.

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