Increased Home Prices Could Mean Decreased Affordability

While the real estate market continues to fluctuate, it creates a mixture of good news and bad news depending on your perspective. Clearly, when home prices increase, it is an indicator that the economy is improving. Furthermore, those who are underwater on their homes can breathe a sigh of relief when the value of their homes increases. On the other hand, when home prices increase, they become less affordable to the average homebuyer.

Fortunately, second quarter data released by the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) indicates that strengthening home prices have contributed only slightly to a decrease in housing affordability. According to the latest data, 73.8 percent of the homes sold in the second quarter were affordable to families with a median annual income of $65,000. These figures represent a drop from the record high of 77.5 percent that was reached during the first quarter. Despite these figures, 92 percent of the metros included in the latest HOI saw their median home price increase between the first and second quarters.

“With overall housing affordability remaining favorable and interests rates continuing to be low, the HOI decline is just one more indicator that the housing recovery is beginning to solidify,” states Josh Anderson of Keller Williams Nashville. Furthermore, these figures help to increase the confidence of prospective buyers and sellers who may have otherwise been reluctant to buy or sell a home in the current marketplace.

According to the latest figures, the top five most affordable housing markets during the second quarter were:

  • Youngstown-Warren-Boardman, Ohio-Pennsylvania
  • Dayton, Ohio
  • Buffalo-Niagara Falls, New York
  • Indianapolis-Carmel, Indiana
  • Modesto, California

In the case of the Youngstown-Warren-Boardman, Ohio-Pennsylvania market, 93.4 percent of the homes sold were affordable to those households where the median family income was $55,700.

Among the smaller housing markets, top housing markets in terms of affordability were Fairbanks, Alaska, where 98.7 percent of homes sold during the second quarter were affordable to families with a median annual income of $92,900. Fairbanks was followed by Mansfield and Springfield, Ohio; Carson City, Nevada; and Kokomo, Indiana.

On the other end of the spectrum, the least affordable major housing markets were:

  • New York-White Plains-Wayne, New York-New Jersey
  • San Francisco-San Mateo-Redwood City, California
  • Bridgeport-Stamford-Norwalk, Connecticut
  • Santa Anna-Anaheim-Irvine, California
  • Los Angeles-Long Beach-Glendale, California

With just 29.4 percent of homes being affordable to families with a median income of $68, 300, the New York-White Plains-Wayne, New York-New Jersey metro area was the least affordable housing market for the 17th consecutive quarter.

The least affordable smaller housing markets include Ocean City, New Jersey; San Luis Obispo-Paso Robles, California; Santa Cruz-Watsonville, California; Dover, Delaware; and Santa Barbara-Santa Maria-Goleta, California.

About The Author – Ted Whitt blogs about real estate for