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Elevated mortgage rates and increased construction costs coupled with onerous regulatory costs resulted housing affordability remaining near its lowest level in more than a decade during the fourth quarter of 2023, according to the National Association of Home Builders (NAHB)/Wells Fargo (NYSE:WFC) Housing Opportunity Index (HOI).

According to the new HOI data, 37.7% of new and existing homes sold between the beginning of October and end of December were affordable to families earning the national median income of $96,300. This was almost identical to the 37.4% posted in the third quarter of last year, which was the lowest reading since NAHB began tracking affordability on a consistent basis in 2012.

The HOI shows that the national median home price was $375,000 in the fourth quarter, down from $388,000 in the third quarter. Meanwhile, average mortgage rates increased more than 30 basis points from 7.13% in the third quarter up to 7.44% in the fourth quarter—the highest rate in the HOI series history.

“Affordability conditions should show some gradual improvement this year, as mortgage rates peaked in the fourth quarter of 2023 and are now well below 7%,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama. “But even as lower interest rates track with our latest builder surveys that indicate an upturn in builder confidence in the single-family market, affordability conditions will remain challenging as builders contend with a high-cost regulatory environment and a chronic shortage of workers and buildable lots.”

NAHB added that it was discontinuing its HOI and will replace it with a new housing affordability index called the Cost of Housing Index (CHI), a quarterly analysis of housing costs in the U.S. and metropolitan areas. NAHB stated the CHI will represent the share of a typical family’s income needed to make a mortgage payment, and a low-income CHI will also be produced for families earning only 33% of the area’s median income.

 

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