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Housing Affordability Slips with Price Gains
David Crowe / NAHB / August 22, 2013
Recent gains in home prices and rising interest rates have put in a dent in housing affordability. According to the NAHB/Wells Fargo Housing Opportunity Index, 69.3% of the homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $64,400. This is down from 73.7% in the first quarter and the first time that the measure has fallen below 70% since late 2008.
However, interest rates remain low and underlying economic fundamentals should support continued growth for housing, with occasional monthly ups and downs. The NAHB/Wells Fargo Housing Market Index for August supports this conclusion, rising to a level of 59, the highest in eight years. Builders see customers recovering from the fears evident in the early stages of the recovery when house price movements were uncertain. Unlocked pent-up demand and the limited supply of new and existing homes have also supported housing demand.
Housing starts data were at a seasonally adjusted annual rate of 896,000 in July. The U.S. Census Bureau/HUD report places the July rate at 6% above the upwardly revised June estimate of 846,000 and 21% above a year ago.
The month-over-month increase in housing starts reflected sizeable gains in multifamily housing, increasing 26% over the month of July to a seasonally adjusted annual rate of 305,000. On a three-month moving average basis, multifamily housing starts increased by 6% to 290,000.
Despite the increase, the three-month average of multifamily housing starts remains below the 300,000 level recorded in the first five months of the year. Yet long-run prospects for apartments remain positive, with recent Bureau of Labor Statistics data indicating real rents up 1.1% over the last 12 months.