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Housing Affordability Falls to Lowest Level in 4.5 Years

If there's been one upside to the housing crisis, it's the fact that homes are more affordable now than they were at the height of the bubble. For much of the past few years, in fact, housing affordability has been hovering near historic highs, with nearly three quarters of new and existing home sales falling within grasp of median income households. The question now is whether that's on the verge of changing.

Data released yesterday by the National Association of Home Builders showed that affordability, while still high by historical standards, is on the downturn. As a result of rising home prices together with the recent surge in mortgage rates, an estimated 69.3% of home sales fell within range of the median income household in the second quarter of the year. This is down from 73.7% during the first quarter.

"Together with rising mortgage rates, this contributed to affordability slipping to the lowest level in more than four years," observed NAHB Chief Economist David Crowe. "Such movement would be less concerning were it not for ongoing discussions regarding potential changes to the mortgage interest deduction and federal support for the secondary mortgage market, both of which play enormous roles in keeping homeownership affordable."

The range of affordability varies significantly across the country. The most affordable major housing market was the Ogden-Clearfield metropolitan area outside of Salt Lake City, Utah, where 92.8% of homes sold during the second quarter were affordable to families that earned the area's median income. Alternatively, though not surprisingly, the area encompassing San Francisco was the least affordable market, in which only 19.3% of homes sales fell within range of median-income households.

This news, as well as a fall in demand for mortgage applications, is weighing on home builders today. Shares of Toll Brothers (NYSE: TOL  ) are trading lower by 1.2%, and KB Homes (NYSE: KBH  ) by 0.65%. Bucking the trend, meanwhile, are shares of Beazer Homes (NYSE: BZH  ) and Hovnanian (NYSE: HOV  ) , which are up by 0.2% and 1.25%, respectively, at the time of writing.

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  • Report this Comment On August 17, 2013, at 9:20 AM, zukerman wrote:

    Your call here seems to go against your investing profile of buy and hold. Could it be your not looking at this sector the way you should. Very few analysts write about housing and when they do they just follow what the naysayers tell them they should think. I understand that charts can be time consuming, but you should've incorporated the number of homes sold during the other years listed. You need only look at your own past experiences to glean information about the mortgage business. When we bought our first home the interest rates were too high and we were lured toward ARMs.This offered a rate we could handle long enough to save extra cash for the inevitability of paying to establish a fixed rate with the bank. It wasn't exactly a smooth transition once that teaser rate ratcheted from 6 3/4 to 9 3/4 in a short period of time. The point is we seem to forget that the banks have to be flexible when rates take off because it effects their bottom line too. Some credit unions will loan with zero down right now, with good credit, and so it starts all over again. Greedy financial institutions almost killed our way of life because we weren't watching close enough, you can recall the commodities scandal from last month, we're watching closely now. Are you dismissing the competitive nature of these fine institutions? Look for the banks to loosen lending standards as soon as the cash slows is my way of thinking. We need more articles like this one to stimulate a conversation that shows the whole picture and not a fifteen minute regurgitation on a hot button topic. The price appreciation in housing will allow many to take home improvement loans and sell at a profit. Availability is key, but not the availability you speak of, not price, but inventory will rue the day. What better way to repay your home improvement loan than making money on housing stocks for the next few years.

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9/29/2016 4:02 PM
BZH $11.56 Down -0.36 -3.02%
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Toll Brothers CAPS Rating: ***