Rising Mortgage Rates Harming Housing Affordability: NAHB/Wells Fargo

(Illustration courtesy of NAHB and Wells Fargo)

Rising mortgage rates, elevated construction costs and limited existing inventory helped push housing affordability in the third quarter to its lowest level in more than a decade.

The National Association of Home Builders/Wells Fargo Housing Opportunity Index reported just 37.4% of new and existing homes sold between July and September were affordable to families earning the U.S. median income of $96,300. This is down from 40.5% in the second quarter and the lowest reading since NAHB began tracking affordability on a consistent basis in 2012.

“Steadily rising interest rates since the beginning of the year are taking a toll on housing affordability by raising housing costs for buyers and increasing the cost of development and construction loans for builders,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “And with mortgage rates currently near 8%, our builder surveys indicate that market conditions will remain challenging through the end of the year, even as the Federal Reserve appears to be done raising interest rates.”

“Rising mortgage rates have clearly been the key cause of declining housing affordability conditions and shelter costs have been the main driver of inflation,” NAHB Chief Economist Robert Dietz noted.

The Housing Opportunity Index found the national median home price held steady at $388,000 in the third quarter. Meanwhile, average mortgage rates jumped from 6.59% in the second quarter to 7.13% in the third quarter—the highest rate in the HOI series history.