More Apartment Dwellers Likely To Stay Put As Home Affordability Declines

More apartment dwellers are likely to stay put as single-family home affordability declines.

Higher home prices, longer construction times, and an expected rise in interest rates will price some prospective home buyers from the market this year despite economic growth at the highest rate since 1984 and a continued improvement in the labor market, predicted National Association of Home Builders Chief Economist Robert Dietz predicted late last week.

Rising material costs and supply shortages along with expected increases in mortgage rates are expected to keep a growing number of potentially prospective home buyers in multi-family rentals.

Lumber prices at an all-time high and low mill production are exacerbating the problem which has also led to a decline in confidence by single family builders surveyed by NAHB in March.

New and existing homes sold in the first quarter were affordable to 63.1% of families earning the US median income of $79,900, dropping from the 63.3% of homes sold in the fourth quarter of when the median income was $78,500, the NAHB/Wells Fargo Housing Opportunity Index (HOI) reported late last week in conjunction with Dietz’s statement.

The HOI shows that the national median home price held steady at $320,000 in the first quarter, unchanged from the fourth quarter. Meanwhile, average mortgage rates increased by 11 basis points in the first quarter to 2.96% from the previous all-time low of 2.85% in the fourth quarter.

All five of the top least affordable housing markets with populations of at least 500,000 were in California as well as four of the five least affordable smaller markets.

For the second quarter in a row, the five were led by Los Angeles-Long Beach-Glendale with 11.6% of the homes sold affordable to families earning the area’s median income of $78,700.

In descending order the other top five least affordable markets were:  San Francisco-Redwood City-South San Francisco; Anaheim-Santa Ana-Irvine; San Diego-Carlsbad; and Oxnard-Thousand Oaks-Ventura.

The California area heading the nation’s least affordable housing markets was Salinas, Calif., where 15.1% of all new and existing homes sold in Q1 were affordable to families earning the region’s median income of $80,900.

The other California smaller markets near the top of the least affordable rankings were (second to fifth): Napa, San Luis Obispo-Paso Robles-Arroyo Grande, and Santa Cruz-Watsonville, Calif.

Corvallis, OR came in at number 2.

Lansing-East Lansing, MI was the nation’s most affordable major housing market, with 91.8% of all new and existing homes affordable to families earning the area’s median income of $79,100.

Cumberland, MD/WV was rated the nation’s most affordable smaller market, with 97.5% of homes sold in the first quarter being affordable to families earning the median income of $60,800.