As mortgage rates continue to inch higher, consumers are bracing for steeper homebuying costs this spring. Households earning the national median income of $68,000 a year could afford about 59.6 percent of new and existing homes that were sold in the fourth quarter of 2017, according to the National Association of Home Builders. The trade group’s latest report looks at home prices, mortgage interest rates, and median household income across 238 U.S. metros.
“Buyers should be prepared,” says NAHB Chief Economist Robert Dietz. “It’s going to be more expensive to afford a house over the course of 2018. … Interest rates went up a little bit, and home prices went up as well.”
Mortgage rates have increased for the past five consecutive weeks. Lawrence Yun, chief economist for the National Association of REALTORS®, predicts that mortgage rates will reach 4.5 percent by the second half of the year. Inventory shortages in both the new- and existing-homes sectors, along with high buyer demand, have prompted home prices to escalate, fueling bidding wars.
Further, the shakeout from newly enacted tax reform legislation may have an impact on some markets. “The new tax law is expected to contribute to price softness in some high-cost, high-tax markets now that deductions for income and property taxes are capped at $10,000 per year,” Dietz says.
According to NAHB, housing affordability may be most depressed in California. Every market in the state topped the group’s list of least affordable metros in the country, with San Francisco claiming the number one spot. The median list price in San Francisco is $1.2 million, according to realtor.com®. Los Angeles, Anaheim, San Jose, and Santa Rosa also ranked high for low affordability, according to NAHB’s index.
On the other hand, the Syracuse, N.Y., and Youngstown, Ohio, markets are the most affordable in the country. About 88.3 percent of the homes sold in Syracuse and Youngstown were affordable to households earning the areas’ median incomes of $54,600 and $68,000, respectively. Other markets with the highest affordability include Indianapolis; Scranton, Pa.; and Columbia, S.C. The most affordable smaller market is Cumberland, Md., where residents earning the median income of $53,900 can afford 96.9 percent of the homes sold there.
Source: “Will It Become Harder to Afford a Home? Experts Say Yes,” realtor.com® (Feb. 9, 2018) and National Association of Home Builders