As far as real estate statistics go, one of the most useful and interesting is the housing affordability index. What good are sales numbers and prices if not put into context? The affordability index provides that context, telling us the percentage of homes in a given location that a family earning an average income can afford – by traditional standards.
The Housing Opportunity Index released earlier this month by the National Association of Home Builders and Wells Fargo shows that housing affordability was near its highest level in 20 years in the third quarter. A near-record 72.9% of all new and existing homes sold during this time were affordable to families earning the national median income of $64,200.
What’s fueling this feel-good statistic are major price drops in markets across the country and record low interest rates: two factors that obviously bode well for home buyers (especially first-time home buyers who aren’t depending on the same market conditions to sell a house). Interest rates on a 30-year fixed mortgage are still hovering around 4.2%, which means borrowing is cheap by historic standards. And while prices have stabilized in some markets, they’re still much lower on average nationwide than they were five years ago.
What are the most and least affordable markets right now in the U.S.? Lakeland-Winter Haven, Fla., where 92.5% of all homes sold in the third quarter were affordable to families earning the median income of $53,800, was the most affordable major housing market. Other major metros that ranked as among the most affordable were Toledo, Ohio; Youngstown-Warren-Boardman, Ohio-Pa.; Indianapolis-Carmel, Ind.; and Ogden-Clearfield, Utah.
The least affordable major market was in New York-White Plains-Wayne, N.Y.-N.J., where only 23.3% of homes sold in the third quarter were affordable to families earning the area’s median income of $67,400.
It’s not surprising that the New York metro division has owned the title of least affordable market for more than three years. Other major metro areas that share the bottom of the affordability index were San Francisco-San Mateo-Redwood City, Calif.; Honolulu; Santa Ana-Anaheim-Irvine, Calif.; and Los Angeles-Long Beach-Glendale, Calif.
Here we are in the Bay Area – where the nation’s least affordable housing markets still sit. Fortunately, in real estate, “least affordable” can also mean “most desirable,” which means that despite affordability issues, we still have demand from buyers who want in. With the tenacity of our tech economy and record low interest rates, I don’t believe that affordability problems will derail our markets here. Affordability may slow appreciation a bit over time, but that first rule of real estate wins every time: location. Clearly, buyers still like their coastal real estate.