Most And Least Affordable Metros: Soaring Home Prices Pinch Affordability

By creating a housing shortage, the coronavirus delivered a blow to housing affordability. However, in a countertrend that has softened the blow to buyers’ budgets, the pandemic drove mortgage rates to record lows.

Now, though, mortgage rates are rising, and home prices have soared at a record pace over the past year. The National Association of Home Builders estimates the median price of all new and existing homes sold in the United States rose to a record $360,000 in the final three months of 2021.

As a result of skyrocketing prices, it’s getting harder for Americans to afford homes. Just 54.2 percent of homes sold during the fourth quarter were affordable to families earning a typical income. That number stood at 66 percent in the first quarter of 2020, the start of the pandemic, according to the NAHB/Wells Fargo Housing Opportunity Index.

3 factors drive affordability

The builders’ index looks at three variables — incomes, home prices and mortgage rates. The affordability study shows nationwide home prices remain high. The median home price posted a record in the fourth quarter.

In a trend that tightens the affordability squeeze, average mortgage rates rose to 3.16 percent in the fourth quarter, up from 2.95 percent in the third quarter.

While falling mortgage rates had created tailwinds for affordability, that trend has reversed. And there’s a major headwind — home prices are rising much faster than wages. Median incomes rose just 2 percent from 2020 to 2021, compared to a double-digit jump in home prices, according to the index.

Meanwhile, those who are still employed are driving home prices higher. Bidding wars remain common in many areas.

The pandemic has created another unintended consequence: Prices of building materials have soared. “Supply chain disruptions stemming from labor shortages to lumber to home appliances and other building materials are delaying construction times and contributing to higher home prices,” National Association of Home Builders Chairman Chuck Fowke said in a statement.

5 most affordable metro areas

Home prices and incomes vary widely, and there are oases of affordability, mainly in the Rust Belt and Midwest. The top five most affordable places among metro areas with population of 500,000 or more:

Lansing, Michigan: As a result of modest home prices, 90.6 percent of all new and existing homes sold in the fall months were affordable to families earning the area’s median income of $79,100. The median home price was $155,000 in the fourth quarter of 2021, the builders’ index says.

Scranton-Wilkes Barre-Hazleton, Pennsylvania: Wages here are below national levels, but so are home prices — the median sale price was $150,000 in the fourth quarter. As a result of rock-bottom prices, 88.5 percent of all new and existing homes sold in October, November and December of 2021 were affordable to families earning the area’s median income of $70,600.

Pittsburgh: This metro area has a median family income of $84,800 and a median home price of just $166,000. As a result, 88.4 percent of homes were affordable for typical earners.

Indianapolis. This metro area has a median family income of $81,600 and a median home price of $215,000. As a result, 87.6 percent of homes were affordable for typical earners.

Akron, Ohio: With a median family income of $83,300 and a median home price of $165,000, fully 86.5 percent of homes were in reach of median-income families in the state capital.

5 least affordable areas

At the opposite end of the affordability spectrum, California dominates. The nation’s least-affordable markets:

Los Angeles-Long-Beach-Glendale: In a market with a median home price of $801,000, LA’s median income of just $80,000 doesn’t go far. As a result, only 7.5 percent of homes were affordable for typical families.

Anaheim-Santa Ana-Irvine: Orange County’s incomes are high: The typical family makes $106,700 this year. But home prices are higher, at a median of $930,000. That means just 11.5 percent of homes are in reach of average families.

San Francisco-Redwood City-South San Francisco: Incomes are high here — the median is $145,400. Prices are even higher — the typical home went for $1.5 million. That translates to just 13 percent of homes sold during the autumn months falling in the range of affordability for families earning the area’s median income.

San Diego-Carlsbad: San Diego has a median family income of $95,100 and a median home price of $750,000, translating to just 13.9 percent of homes falling in the typical buyer’s budget.

Ventura, California: This area’s median family income is a healthy $98,800, but the typical home sold for $749,000. That meant 19.3 percent of homes sold were affordable.

Housing affordability has been an ongoing challenge in California and other areas that have seen strong demand and little new building since the Great Recession.

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