Real EstateAgent

These are the most affordable housing markets in the country

Rising mortgage rates and sales prices are taking a toll on buyers’ purchase power

As mortgage rates and home prices have continued to rise, housing affordability has worsened. During the second quarter of 2022, 42.8% of new and existing homes sold were affordable to families earning the U.S. median income of $90,000, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) published on Thursday.

This is the lowest level the HOI has fallen since the Great Recession. In the first quarter of the year, 56.9% of homes were affordable to families earning the median income.

The national median home price in Q2 was $390,000, up from $365,000 in Q1, while the average mortgage rate jumped from 3.86% to 5.33%, according to the NAHB. This translates to the monthly mortgage payment on a typical existing single-family home with a 20% down payment rising 32% quarter over quarter, and 50% year over year to $1,841, according to the National Association of Realtors.

Typically, families spent 24.3% of their income on mortgage payments during the second, up from 18.7% the prior quarter and 16.9% one year ago. A mortgage is considered unaffordable if the monthly payment amounts to over 25% of the family’s income.

“Rising housing costs stemming from increased interest rates, supply chain disruptions that have led to higher prices for building materials, and a persistent lack of construction workers are dramatically affecting home prices,” Jerry Konter, the NAHB chairman, said in a statement. “Taming housing costs will ultimately require building more homes, and it will be easier to increase production in more affordable smaller and mid-sized markets that are growing in population and attracting new businesses.

In its HOI report, the NAHB found the Los Angeles-Long Beach-Glendale metro to be the least affordable in the country during Q2, with only 3.6% of homes being affordable for families making the area’s median income of $90,100. Four other Californian metros rounded out the top five: Anaheim-Santa Ana-Irvine, San Diego-Chula Vista-Carlsbad, San Francisco-San Mateo-Redwood City, and San Jose-Sunnyavle-Santa Clara.

These five metros also made NAR’s top 10 list of most expensive housing markets during Q2, with San Jose-Sunnyavle-Santa Clara topping the list with a median sales price of $1.9 million, up 11.8% compared to a year prior.

At the other end of the spectrum, the Lansing-East Lansing, Michigan metro was the most affordable major housing market in the second quarter, with 85.2% of homes being affordable for families making the area’s median income of $89,500. Indianapolis-Carmel-Anderson, Toledo, Ohio, Harrisburg-Carlisle, Pennsylvania, and Scranton-Wilkes-Barre, Pennsylvania rounded out the top five most affordable metros.

Through its quarterly “Metropolitan Median Area Prices and Affordability” analysis, NAR found that 148 out of 185 or roughly 80% of metro areas saw double digit annual price appreciation in median single family home sale prices during the second quarter. This is up form roughly 70% in the prior quarter.

According to the analysis the five metros with the largest annual price growth were Fayetteville-Springdale-Rogers, Arkansas-Missouri (31.9%); Lakeland-Winter Haven, Florida (31.4%); Naples-Immokalee-Marco Island, Florida (28.9%); North Port-Sarasota-Bradenton, Florida (28.8%); and Myrtle Beach-Conway-North Myrtle Beach, South Carolina-North Carolina (28.5%).

“Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers,” Lawrence Yun, NAR’s chief economist, said in a statement. “Overall, the national price deceleration inevitably followed the softening sales, providing well-positioned prospective buyers a small measure of welcomed relief. The recent dips in mortgage rates will bring additional buyers to market, especially in those places where home prices are still relatively affordable and where jobs are being added.”