Rising Mortgage Rates and Home Prices Put a Damper on Housing Affordability

Rising home prices and interest rates coupled with elevated construction costs, low existing inventory and solid demand resulted in a significant decline in housing affordability during the second quarter of 2023.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI), 40.5% of new and existing homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $96,300. This is down from 45.6% posted in the first quarter of this year, and the second-lowest reading since NAHB began tracking affordability on a consistent basis in 2012. As another reminder of ongoing housing affordability challenges, the second quarter 2023 HOI reading remains lower than the second quarter 2022 score of 42.8%.

“While builders continue to face a number of affordability challenges, including a shortage of distribution transformers, elevated construction costs and a lack of skilled workers, they remain cautiously optimistic about market conditions,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “A lack of existing inventory is fueling demand for new construction, and mortgage rates are expected to stabilize in the weeks and months ahead as the Federal Reserve nears the end of its tightening cycle.”

“Rising mortgage rates in 2023 that peaked near 7% recently have been a major factor in declining affordability conditions,” said NAHB Chief Economist Robert Dietz. “Given the Fed’s limited ability to address rising construction costs, the best way to satisfy unmet demand and ease the nation’s housing affordability crisis is to enact policies that will allow builders to construct more homes.”

The HOI shows that the national median home price increased to $388,000 in the second quarter, up from $365,000 in the previous quarter. Meanwhile, average mortgage rates were 6.59% in the second quarter, up from 6.46% in the first quarter.

The Most and Least Affordable Markets in the Second Quarter

Lansing-East Lansing, Mich., was the nation’s most affordable major housing market, defined as a metro with a population of at least 500,000. There, 84% of all new and existing homes sold in the second quarter were affordable to families earning the area’s median income of $97,800. 

Top five affordable major housing markets:

  1. Lansing-East Lansing, Mich.
  2. Scranton-Wilkes-Barre, Pa.
  3. Harrisburg-Carlisle, Pa.
  4. Indianapolis-Carmel-Anderson, Ind.
  5. Pittsburgh, Pa.

Meanwhile, Cumberland, Md.-W.Va., was rated the nation’s most affordable small market, with 95.5% of homes sold in the second quarter being affordable to families earning the median income of $89,900. 

Top five affordable small housing markets:

  1. Cumberland, Md.-W.Va.
  2. Bay City, Mich.
  3. Elmira, N.Y.
  4. Davenport-Moline-Rock Island, Iowa-Ill.
  5. Utica-Rome, N.Y.

For the 11th straight quarter, Los Angeles-Long Beach-Glendale, Calif., remained the nation’s least affordable major housing market. There, just 3.2% of the homes sold during the second quarter were affordable to families earning the area’s median income of $97,500.

Top five least affordable major housing markets—all located in California:

  1. Los Angeles-Long Beach-Glendale
  2. Anaheim-Santa Ana-Irvine 
  3. San Diego-Chula Vista-Carlsbad
  4. Oxnard-Thousand Oaks-Ventura
  5. San Francisco-San Mateo-Redwood City

The top five least affordable small housing markets were also in the Golden State. Tied at the very bottom of the affordability chart were Salinas, Calif., and San Luis Obispo-Paso Robles, Calif., where 6.5% of all new and existing homes sold in the second quarter were affordable to families earning the area median income of $100,400 in Salinas and $113,100 in San Luis-Obispo-Paso Robles.

Top five least affordable small housing markets—all located in California:

  1. Salinas
  2. San Luis Obispo-Paso Robles
  3. Santa Maria-Santa Barbara
  4. Napa
  5. Merced

Please visit nahb.org/hoi for tables, historic data and details.

*Note: All articles have been redistributed from NAHBnow.com*

Neighborhood with Homes

NAHB Urges Against Using Invalidated WOTUS Rule as New Rule Baseline

Following the U.S. Supreme Court’s Sackett ruling in May and its sweeping rejection of several core aspects of the 2023 Revised Definition of Waters of the United States (WOTUS), the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (Corps) made two announcements:

  • First, the agencies directed all Corps district offices to cease processing new requests for approved jurisdiction determinations (AJDs) and issuing new AJDs and Clean Water Act (CWA) 404 permits until the agencies finalize a new WOTUS regulatory definition that comports with the Sackett ruling.
  • Second, the agencies announced their intention to issue a revised WOTUS regulatory definition by Sept. 1, 2023, using a rarely used rulemaking process known as a direct final rulemaking process.

NAHB objected to the agencies’ decision to cease processing new AJDs and underlying CWA 404 permits and urged the agencies to immediately develop interim WOTUS regulatory guidance consistent with the Sackett ruling. The amended final rule, NAHB noted, should follow the normal and routine public notice and comment process that typifies the federal rulemaking process.

Instead, the agencies have announced that, by using a good cause exemption under the Administrative Procedure Act (APA), they will not publish a proposed rule, nor take public comment before finalizing the rule. The good cause exemption permits agencies to forgo notice and comment requirement and bypass its 30-day publication requirement if good cause exists.

Typically, good cause exemptions are used in emergencies, contexts where prior notice would subvert the underlying statutory scheme, and situations where Congress intends to waive the APA’s notice and comment requirements.

However, by following this approach, the agencies risk not addressing other major flaws within the 2023 rule that are central to the Supreme Court’s Sackett ruling — namely providing a clear definition of what constitutes an “adjacent” wetland as well as defining for the first time what constitutes a federal CWA jurisdictional “relatively permanent” waterbody.

Under Sackett, only waterbodies (i.e., lakes, ponds, and streams) that maintain a relatively permanent water connection to another jurisdictional waterbody are jurisdictional under the CWA.  CWA jurisdictional wetlands (including adjacent wetlands) must be indistinguishable from and thereby directly connected to a traditional navigable water (TNW).

By establishing these two rules of thumb for CWA jurisdiction, the Court rejected the agencies’ attempts under prior WOTUS regulatory definitions, including the recent 2023 WOTUS rule, to assert federal jurisdiction over isolated wetlands and ephemeral streams by alleging these features possessed either a physical, chemical or biological connection to a downstream TNW.

Based upon the Court’s findings on CWA jurisdiction under Sackett, the following graphic illustrates what types of features should no longer be under CWA jurisdiction.


Clean Water Act Jurisdictions

NAHB Raises Concerns with OMB

NAHB staff met with the Office of Management and Budget (OMB) on Aug. 1, 2023, to relay the industry’s concerns about using the recently invalidated 2023 rule as the base text for the upcoming rule. Staff explained that after Sackett, it was not enough for the agencies to simply remove the significant nexus test from the 2023 rule.

NAHB staff also reminded OMB that CWA Section 101b outlines that states have the primary responsibility to prevent, reduce and eliminate pollution and urged the agencies not to expand their jurisdiction after the Sackett decision.

Finally, NAHB urged OMB and the agencies to include previous exclusions under the rule, such as waste treatment systems (WTS) and municipal separate sewer systems (MS4s), ephemeral features, groundwater, artificial ponds, wastewater recycling and stormwater control devices, green infrastructure, and prior converted croplands.

Radhika Fox, assistant administrator to the EPA Office of Water, announced during a recent House subcommittee hearing that the agencies will hold stakeholder hearings. However, the usefulness and purpose of these yet-to-be announced public hearings remains in doubt because EPA will host these public hearings only after the revised WOTUS rule is in effect.

For the latest WOTUS information, visit nahb.org.

*Note: All articles have been redistributed from NAHBnow.com*


How Women Leaders Can Continue Advancing Within the Industry

Women accounted for nearly 1.2 million of those employed in the construction industry in 2020, per the Bureau of Labor Statistics, and about 10.9% of the workforce. In 2021, that share crept even higher to 11%.

Women are continually taking on expanding roles within the home building industry. And as the numbers keep growing, NAHB wants to ensure women leaders continue to advance within the Federation.

In an upcoming Shop Talk hosted by the NAHB Professional Women in Building Council (PWB), industry experts Linda Hebert, owner of Diversified Marketing and Communications Inc., and Nicole Goolsby, owner of Red Ladder Residential Inc., will discuss effective strategies and key considerations for women leaders throughout NAHB.

The free Shop Talk, “Filling the Pipeline: Advancing Women Leaders Across the Federation,” will take place Thursday, Aug. 17 at 11 a.m. ET and be moderated by PWB Second Vice Chair Carrie DeWeese.

Register now for the Shop Talk.

*Note: All articles have been redistributed from NAHBnow.org*

Two women in the construction field, designing a project

Builder Confidence Edges Higher Despite Rising Rate Concerns

Low existing inventory that is keeping demand solid for new homes helped to push builder confidence up in July even as the industry continues to grapple with rising mortgage rates, elevated construction costs and limited lot availability.

Builder confidence in the market for newly built single-family homes in July posted a one-point gain to 56, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This is the seventh straight month that builder confidence has increased and marks the highest level since June of last year.

“The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “At the same time, builders are troubled over rising mortgage rates approaching 7% and continue to grapple with supply-side challenges, including ongoing scarcity of electrical transformer equipment and growing concerns about lot availability.”

“Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle,” said NAHB Chief Economist Robert Dietz.

Given that shelter inflation accounts for roughly 40% of the Consumer Price Index, Dietz added the best way to ease this largest source of inflationary pressure is to build additional for-rent and for-sale housing. “There’s been some commentary linking gains for housing construction with increased concerns for additional inflation, but this has the economics backwards,” he said. “More housing supply is good news for future shelter inflation readings in the market. Furthermore, higher interest rates increase the cost of financing for building homes and developing lots.” 

The July HMI survey also revealed that despite elevated interest rates, builders’ use of sales incentives has declined, as the market has firmed and resale inventory options remain limited. Only 22% of builders report cutting prices in July. This is down from 25% in June and 27% in May.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI index gauging current sales conditions in July rose one point to 62, the component charting sales expectations in the next six months fell two points to 60, and the gauge measuring traffic of prospective buyers increased three points to 40, the highest reading since June of last year. However, the decline for the future sales expectation reading is a reminder that housing affordability continues to be challenged by elevated interest rates.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased five points to 52, the Midwest edged up two points to 45, the South increased three points to 58 and the West posted a five-point gain to 51.

HMI tables can be found at nahb.org/hmi. More information on housing statistics is also available at Housing Economics PLUS (formerly housingeconomics.com).

*Note: All articles have been redistributed from NAHBnow.com*

Home Construction

The Fed: Driving While Using Only the Rear-View Mirror

NAHB Chief Economist Robert Dietz provided the following housing market overview in his biweekly newsletter Eye on the Economy.

Markets are increasingly expecting the Federal Reserve to increase the short-term federal funds rate by 25 basis points in July and again in September. As a result, the 10-year Treasury rate rose to above 3.9% this week (the highest since March) and looks set to test a 4% rate again. This means upward pressure on mortgage rates, perhaps approaching 7% on a 30-year fixed home loan. Recall the cycle high was near 7.2% in the fall of 2022.

The Fed is still concerned the labor market is too hot (risking wage inflation absent productivity growth) and costs for non-housing services are rising too quickly. However, the central bank is risking a policy mistake — and a hard landing — by focusing on backward-looking data. About 40% of inflation is generated from shelter costs (rent and owners’ equivalent rent) and those prices are rising more than twice as fast as overall inflation gauges. But those measures are inherently backward looking. Real-time measures of rent show generally flat growth, and there are more than 1 million apartments in the construction pipeline, meaning more supply and lower rent growth lie ahead. This is the risk of driving and only using the rear-view mirror.

Moreover, commodity inflation has slowed significantly. For example, according to NAHB analysis of Producer Price Index data, from January to May of 2022, residential construction material prices were up just 0.3%. This is in stark contrast to the equivalent measure for 2022 (10.2%). That said, some supply-chain issues remain, with electrical transformers in short supply and ongoing increases for concrete prices (up 13% over the last year).

These factors all suggest that the rate of inflation will continue to slow. The prudent policy approach for the Fed is now to pause and move into a data-dependent mode, rather than overshoot in an attempt to appear hawkish for Wall Street. State, local and federal governments can help by enacting policies that will support the supply-side of the economy, particularly with respect to shelter costs, by facilitating more affordable, attainable single-family and multifamily construction.

While residential construction data will be pressed by higher interest rates in the near-term, recent data have been positive. The NAHB/Wells Fargo Housing Market Index measure of single-family building sentiment increased five points in June to a positive level of 55. This was the first measure above the breakeven level of 50 in 11 months. In May, single-family starts increased 18.5% to a 997,000 seasonally adjusted annual rate. However, this remains 6.6% lower than a year ago. The multifamily sector increased 27.1% to an annualized 634,000 pace. However, multifamily development will slow during the second half of 2023.

And despite elevated rates, the lack of existing home inventory continues to support demand for new construction. Currently, about one-third of total housing market inventory is made up of newly built homes, compared to about a 12% historical average. As a result, the pace of new home sales is up 20% compared to a year ago, while resale activity is down 20%. In May, sales of newly built, single-family homes increased 12.2% to a 763,000 seasonally adjusted annual rate.

Despite these positive readings for the building market, this rebound momentum is at risk if mortgage rates move north of 7% for a sustained period of time.

Learn more about what the Fed will do next during an upcoming webinar from Pro Builder on Thursday, July 6, at 1 p.m. ET. Register here to attend.

Subscribe for free to Eye on the Economy.

*Note: All articles have been redistributed from NAHBnow.com*

Federal Government

House and Senate Lawmakers Unveil NAHB-Supported Transformer Bill

At NAHB’s urging, Rep. Richard Hudson (R-N.C.) and Sen. John Barrasso (R-Wyo.) have introduced identical House and Senate bills — Protecting America’s Distribution Transformer Supply Chain Act — that would delay for five years any rulemaking on energy-efficiency standards for distribution transformers.

“At a time when the home building industry is facing a severe shortage of distribution transformers, NAHB commends Rep. Hudson and Sen. Barrasso for introducing this important legislation,” said NAHB Chairman Alicia Huey. “This vital measure will provide needed time to boost output at existing facilities to address the growing supply chain crisis for transformers that has delayed home construction projects across the country and aggravated the nation’s housing affordability crisis.”

This was one of the key issues during the recent NAHB Legislative Conference when more than 700 NAHB members discussed vital matters of concern to the housing industry with their lawmakers on Capitol Hill.

The Department of Energy has proposed to increase the energy conservation standards for the production of distribution transformers and NAHB has been working diligently with House and Senate lawmakers to oppose this plan because it will exacerbate an already acute supply-chain shortage.

NAHB continues to work with both chambers of Congress to seek additional funding aimed solely at boosting production of distribution transformers to meet market demand.

*Note: All articles have been redistributed from NAHBnow.com*

Member Turns Local Partnership into Nationwide Success

NAHB’s Boys & Girls Clubs of America partnership pilot program was not the genesis of a consultant or a white paper recommendation. Instead, John McKenzie, a Madison Area Builders Association (MABA) member for 30 years, approached NAHB with scaling the idea nationwide after launching a successful partnership with his local club and MABA.

“It was the perfect synergy of two large organizations,” said Gregory Zick, NAHB AVP, Workforce Development. “HBAs are in rural, suburban and metro areas. And we want to introduce careers in construction to as many kids as possible. Thanks to the pilot program, HBAs are now engaging with local clubs and members serve on their boards.”

McKenzie started working with Boys & Girls Clubs of Dane County, Wisc. (BGC) because he was impressed with their mission. The club awarded one scholarship and the recipient achieved remarkable success. This outcome inspired McKenzie to do something else with BGC with a broad reach and ongoing impact. That’s when he started thinking about the needs of his apartment complex business and how they might align with the mission of BGC.

“My company would have projects we couldn’t finish for weeks or months because we couldn’t find a carpenter. It was and remains a real problem,” said McKenzie. “The other thing I was aware of was the construction workforce was primarily male, getting older, and primarily white. So, a light bulb went off. What a fantastic opportunity to introduce skilled trades to the young people of the Boys & Girls Club!”

Then, McKenzie connected BGC to MABA. The initial concept was to create a place where kids could participate in career introductory programming. He also wanted to help close the race and gender wealth gap by incorporating instruction on how to save and invest money.

The team found a facility near a bus route to help lessen the transportation burden on students. The plan was to beautify the building enough to compete with college campuses. Initially, McKenzie and the team expected to fundraise about $2 million and he would also contribute. To date, $31.4 million has been raised for the McKenzie Regional Workforce Center. The facility also has a full floor dedicated to wealth building and entrepreneurship. The center will be completed by July 2023.

“It has been so energizing for me and the people involved in it. The excitement, the positive feeling of people on our staff, in our organization, on our board, but beyond that, in our community,” said BGC President and CEO Michael Johnson. “And 75% of the money has come from private donations, industry, and the building business. It says so much about what individuals who buy into an idea can do and how much good will and positive energy there is in this country.” 

Contact NAHB if your state or local home builders association is interested in connecting with a Boys and Girls Club in your community.

*Note: All articles have been redistributed from NAHBnow.com*

Construction project with young professionals

47 Bipartisan Senators Call for Action on Transformers

At NAHB’s urging, a bipartisan group of 47 Senate lawmakers has sent a letter to Sec. Jennifer Granholm urging the Department of Energy (DOE) not to move forward on its proposed rule to regulate energy conservation standards for distribution transformers because it will exacerbate an already acute supply chain shortage.

Senators said that between 2020 and 2022, average lead times to procure distribution transformers went from eight to 12 weeks to up to three years.

“This multi-fold increase is directly impacting the electric power industry’s grid modernization and reliability efforts, … posing challenges for communities that need to rebuild as well as new development,” the Senate letter stated. “We are committed to working with you to identify short and long-term solutions to the supply chain shortage of these critical grid components.”

At a time when the home building industry is facing a severe shortage of electrical transformers, the proposed rule would dictate that manufacturers increase the efficiency of distribution transformers by a mere tenth of a percentage point. In order to achieve this nominal increase in efficiency, the proposed rule would require manufacturers to transition to a different type of steel that would add months to a lengthy order cycle that already takes a minimum of 18 months to two years to produce and deploy new transformers.

House lawmakers have also registered their concerns with DOE over this proposal and this issue will be at the forefront when hundreds of residential construction industry workers trek to Capitol Hill on June 7 for NAHB’s Legislative Conference.

NAHB has also sent comments to DOE stating how this proposed rule will not only exacerbate the current nationwide shortage of electrical transformers, but also fuel delays in home construction projects across the country as well as aggravating the nation’s housing affordability crisis.

NAHB continues to work with House and Senate lawmakers to seek additional congressional funding aimed solely at boosting production of distribution transformers to ease shortages that are delaying home construction projects across the nation as well as aggravating the nation’s housing affordability crisis.

*Note: All articles have been redistributed from NAHBnow.com*


Lack of Resales Provides Boost to New Home Sales in April

Note: This publication of this release on nahb.org was delayed due to technical issues.

Stabilizing mortgage rates and a lack of resale inventory provided a boost for new home sales in April, even as builders continue to wrestle with rising costs stemming from shortages of transformers and other building materials and a persistent lack of construction workers.

Sales of newly built, single-family homes in April increased 4.1% to a 683,000 seasonally adjusted annual rate from a downwardly revised reading in March, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This is the highest level since March 2022.

“A lack of existing inventory supported sales of newly-built, single-family homes in April,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Even more encouraging, we are seeing sales growth in the more affordable price ranges of $200,000 to $400,000.”

“April saw an increase in new home sales as buyers sought new construction even as builders struggle to keep up with demand because of a shortage of distribution transformers and skilled construction workers,” said NAHB Chief Economist Robert Dietz. “Sales for 2023 thus far are still down 9.7% on a year-to-date basis due to elevated interest rates, and sales may weaken in the months ahead given the recent rise in interest rates.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the April reading of 683,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory increased 0.2% in April and remained elevated at a 7.6 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. However, the lack of resale, existing home inventory means that overall inventory for the single-family market remains tight.

The median new home sale price fell in April to $420,800 and was down 8% compared to a year ago. The report showed growth in the lower price ranges, with 9,000 sales in the $200,000-$299,999 price range in April 2023, compared to just 4,000 sales a year prior. The $300,000-$399,999 price bracket grew by 14,000 sales in that same time frame.

Regionally, on a year-to-date basis, new home sales fell in all regions, down 19.2% in the Northeast, 9.8% in the Midwest, 0.7% in the South and 27.5% in the West.

*Note: All articles have been redistributed from NAHBnow.com*

Newly Constructed Home

Top Aging-in-Place Remodeling Projects

May is National Home Remodeling Month, which focuses on the benefits of remodeling and working with professional remodelers to upgrade, repair and maintain homes. One area that consumers can look at to improve the livability of their home is aging-in-place design ideas.

According to NAHB’s Remodeling Market Index (RMI) survey for the first quarter, 98% of remodelers cited that most or some of their consumers are familiar with the aging-in-place concept. That share was 75% in Q4 2004, indicating a significant increase in awareness among consumers over the last two decades.

“As the average age of home owners rises, we are seeing that more and more people are understanding the benefits of remodeling to handle the needs of aging in place,” stated Alan Archuleta, NAHB Remodelers Council Chair. “This awareness is driven by technology, the cost of elder care and the idea of staying in the homes they love!”

More than three-fourths of remodelers (76%) indicated that requests for aging-in-place features have significantly or somewhat increased over the past five years. Home owners who request aging-in-place projects are usually 65 years or older (75%) or 55 to 64 years (70%). The two most common reasons for undertaking aging-in-place projects are planning ahead for future needs (88%) and living with older parents (50%).

Grab bars are the most common aging-in-place project, with 93% of remodelers reporting this job in the last year. They are followed by curb-less showers (83%), higher toilets (77%), wider doorways (63%), and adding lighting/task lighting (49%). 

To view the results from NAHB’s RMI survey in tandem with the Aging-in-Place (AIP) Special Questions, please consult the full survey report. NAHB Economist Eric Lynch also provides additional details in this Eye on Housing post.

Remodeled Home
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