New homes were more affordable in the first quarter of 2018, thanks to higher wages.
“Continued job growth, rising wages and strong consumer confidence are fueling housing demand,” said NAHB chairman Randy Noel. “In turn, this should lead to more buyers entering the housing market in the coming months.”
How strong is housing affordability? 61.6% of all homes sold in the first three months of the year were within reach for families making $71,900—the national median income in Q1 of 2018. Median income in Q1 was almost 6% higher than it was last year, softening the effects of other factors in the marketplace.
That is not to say builders will not face challenges in meeting buyers’ demands. Noel also predicts continued “chronic labor and lot shortages,” as well as increasingly expensive materials and ramped-up regulation. Trade negotiations with Canada restricted the flow of affordable lumber into the market in the first quarter of 2018.
Mortgage rates have been another barrier to affordability. Rates rose by almost 30 basis points, up from 4.06% to 4.34%, in the first quarter.
Despite these obstacles, the combined effect of age growth and more moderate prices led to improved affordability.
Of course, the effects varied across markets. 167 markets moved up from last year in affordability; 68 markets moved down the rankings. Continued best bets for affordability are Indianapolis, Scranton-Wilkes-Barre, Toledo, and Harrisburg, PA. Coastal markets have struggled to offer buyers affordable homes. Last quarter was no exception as San Francisco was the least affordable housing market in the country for both Q4 of 2017 and Q1 of 2018. Los Angeles, Irvine, San Jose, and San Diego were not far behind.