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Housing Affordability Slumps to Record Low

Indianapolis was the nation's most affordable major housing market for the second consecutive quarter during the final three months of 2005, according to the NAHB/Wells Fargo Housing Opportunity Index, which was released on Feb. 23.

Meanwhile, higher interest rates and rising home prices caused nationwide housing affordability to slip for a fourth consecutive quarter to its lowest level on the index ever.

"The latest HOI shows that only 41% of new and existing homes that were sold during the final quarter of 2005 were affordable to families earning the national median income," said NAHB President David Pressly. "This is down from 43.2% of homes sold in the third quarter and 52% of homes sold in the final quarter of 2004."

Pressly noted that the housing affordability situation should start to improve as mortgage rates peak later this year and home price appreciation decelerates from the record rates of the last several years to a more normal pace. "This will give incomes a chance to catch up."

"Between the third and fourth quarters of last year, the national weighted interest rate on fixed- and adjustable-rate mortgages that we use in calculating the HOI rose from 5.84% to 6.21%, and this certainly increased the threshold for families seeking homeownership," said NAHB Chief Economist David Seiders. "Meanwhile, nationwide home prices were on a strong upward trajectory through 2005."

NAHB is forecasting that the average rate on a 30-year, fixed-rate mortgage will inch up gradually to about 6.6% late this year and average about 6.5% for the year as a whole.

In the nation's most affordable major housing market of Indianapolis, 88.7% of new and existing homes that were sold in the fourth quarter were affordable to households earning the area's median income of $64,000. The median sales price of all the homes sold in Indianapolis during the fourth quarter was $120,000.

Other major metro areas near the top of the list in housing affordability were: Youngstown-Warren-Boardman, Ohio-Pa., followed by Detroit-Litonia-Dearborn, Mich.; Grand Rapids-Wyoming, Mich.; and Dayton, Ohio.

Midwestern metros also dominated the list of the most affordable small housing markets with less than 500,000 people. Davenport-Moline-Rock Island, Iowa-Ill. was the most affordable, followed by Cumberland, Md.-W.Va.; Lima, Ohio; Mansfield, Ohio; and Lansing-East Lansing, Mich.

At the bottom of the affordability scale was Los Angeles-Long Beach-Glendale, Calif., where just 2.3% of homes sold in the fourth quarter were affordable to families earning the area's median household income of $54,500. The median price of all homes sold in that area was an even $500,000.

As usual, the bottom of the affordability scale was dominated by large California cities, including Santa Ana-Anaheim-Irvine, San Diego-Carlsbad-San Marcos and Stockton.

New York-White Plains-Wayne, N.Y.-N.J. rounded out the list of the five least-affordable major housing markets.

Among cities with smaller than 500,000 populations, Merced, Calif., was lowest on the list and the second least affordable market overall. Other small cities in the unaffordable column included Modesto, Salinas, Santa Barbara-Santa Maria and Santa Cruz-Watsonville, Calif.

 
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