Rising mortgage rates reduce housing affordability to lowest level in index history

Rising mortgage rates, higher construction costs, and limited current availability all contributed to housing affordability reaching its lowest level in more than a decade in the third quarter of 2023.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI), only 37.4% of new and existing houses sold between the beginning of July and the end of September were affordable to families earning the national median income of $96,300.

This is a decrease from 40.5% in the second quarter of this year, and it is the lowest level since NAHB began measuring affordability on a consistent basis in 2012.

Based on the HOI, the national median home price remained stable in the third quarter at $388,000, unchanged from the previous quarter.

Meanwhile, average mortgage rates increased from 6.59% in the second quarter to 7.13% in the third quarter, the highest rate in the HOI series’ history.

In the third quarter of 2023, the top five most affordable major housing markets were:

• 1. East Lansing-Lansing, Michigan.
• 2. Youngstown, Warren, and Boardman, Ohio/Pa.
• 3. Lancaster-Harrisburg-Carlisle, Pa.
• 4. Indianapolis, Carmel, and Anderson, Ind.
• 5. Scranton-Wilkes-Barre/Scranton, Pa.

Top five most expensive major home markets in California:

• 1. Long Beach-Los Angeles-Glendale
• 2. Anaheim, Santa Ana, and Irvine
• 3. San Diego, Chula Vista, and Carlsbad
• 4. Oxnard, Thousand Oaks, and Ventura
• 5. Redwood City-San Francisco-San Mateo

Meanwhile, Cumberland, Md.-W.Va., was named the nation’s most cheap small market, with 93.7% of homes sold in the third quarter costing less than $89,900.

The Golden State also had the top five least inexpensive small home markets. Napa, California, was at the absolute bottom of the affordability ranking, with 4.2% of all new and existing homes sold in the third quarter being affordable to families earning the region median income of $129,600.