According to the latest Housing Opportunity Index, produced jointly by the National Association of Home Builders (NAHB), Washington, D.C., and Wells Fargo, San Francisco, record-low mortgage rates were not enough to offset inventory shortages and rising home prices, as housing affordability for single-family homes continued to decline in the third quarter of 2020, nearing a two-year low.
The report noted that 58.3% of new and existing homes that were sold in the third quarter of 2020 (between the beginning of July and the end of September) were affordable to families earning an adjusted U.S. median income of $72,900. This is down from the 59.6% of homes sold in the second quarter of 2020 that were affordable to median-income earners, and the lowest reading since the fourth quarter of 2018.
“Though low mortgage rates and favorable demographics have helped spur demand, the lack of inventory exacerbated by supply chain issues stemming from the COVID-19 pandemic have contributed to rising home prices,” said Chuck Fowke, NAHB chairman and a custom home builder in Tampa, Florida. “Surging lumber prices also peaked more than 170% above mid-April levels in September, raising building costs.”
However, Fowke added, lumber prices are now beginning to trend lower, which is good news for prospective home buyers.
“A six-month supply of homes is considered a normal supply and demand balance, and this figure has been running below the four-month rate since July, putting upward pressure on home prices,” said Robert Dietz, NAHB’s chief economist and senior vice president for economics and housing policy. “As builders look to ramp up production, the work-at-home trend is contributing to a suburban shift, meaning that buyers have additional market power to shop for affordable markets.”
According to the report, the Housing Opportunity Index shows that the national median home price jumped to an all-time high of $313,000 in the third quarter of 2020, surpassing the previous record high of $300,000 set in the second quarter of 2020. Meanwhile, average mortgage rates fell by 29 basis points in the third quarter, to a record low of 3.05%, which is a drop from the 3.34% rates in the second quarter.