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With fewer homes for sale in today’s real estate market, demand has helped push home prices higher and higher. In today’s post, we’ll take a look at housing affordability in the U.S. and explore how potential home buyers can navigate the challenges of the current market.

The National Association of Home Builders (NAHB) reported in an August 10 press release that rising home prices offset a quarter-point drop in mortgage interest rates to move housing affordability slightly lower in the second quarter of 2017. This conclusion was drawn from an evaluation of data from the NAHB/Wells Fargo Housing Opportunity Index (HOI).

“While builder confidence remains solid and sales and starts are running at a healthy clip above last year’s levels, housing continues to confront persistent headwinds,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “Rising material prices, particularly lumber, along with chronic shortages of buildable lots and skilled labor are putting upward pressure on home prices and impeding a more robust housing recovery.”

“The job market continues to gain steam and this is boosting housing demand,” said NAHB Chief Economist Robert Dietz. “Meanwhile, growing incomes and attractive mortgage rates are helping to keep housing affordable by partially offsetting ongoing home price appreciation. Home prices will continue to rise as inventory remains tight. NAHB expects the housing market will continue to make gradual gains in 2017.”

According to the NAHB data, 59.4 percent of all 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 $68,000. This is down from the 60.3 percent of homes sold that were affordable to median-income earners in the first quarter.

As the nation’s affordability dropped, median home prices rose. According to the NAHB data, the national median home price was $256,000 in the second quarter, up from $245,000 in the first quarter of 2017. The silver lining, it seems, is a drop in mortgage interest rates. According to the data, the average mortgage rate fell 25 basis points in the second quarter to 4.08 percent from 4.33 percent in the first quarter.

For the third consecutive quarter, Youngstown-Warren-Boardman, Ohio-Pa., earned the recognition of the nation’s most affordable major housing market. In this market, 93.3 percent of all new and existing homes sold in the second quarter were considered affordable to families who earned the area’s median income of $54,600.

As for smaller markets, Kokomo, Ind., appeared to be the nation’s most affordable for the second straight quarter. In this market, 96.9 percent of homes sold in the second quarter were considered affordable to families earning the median income of $62,500.

The remaining top five affordable major housing markets were as follows:

  • Syracuse, N.Y.
  • Dayton, Ohio
  • Buffalo-Cheektowaga-Niagra Falls, N.Y.
  • Scranton-Wilkes Barre-Hazelton, Pa.

Smaller markets joining Kokomo at the top of the list included the following:

  • Davenport-Moline-Rock Island, Iowa-Ill.
  • Glen Falls, N.Y.
  • Watertown-Fort Drum, N.Y.
  • Monroe, Mich.

On the opposite end of the scale, for the 19th consecutive quarter, San Francisco-Redwood City-South San Francisco, Calif., was the nation’s least affordable major housing market. There, only 7.6 percent of homes sold in the second quarter were considered affordable to families earning the area’s median income of $113,100.

Other least affordable major metros (note that all four are located in California) included the following:

  • Los Angeles-Long Beach-Glendale, Calif.
  • Anaheim-Santa Ana-Irvine Calif.
  • San Jose-Sunnyvale-Santa Clara, Calif.
  • Santa Rosa, Calif.

The five least affordable small housing markets also are located in the Golden State. At the bottom of the affordability chart was Salinas, Calif., where just 12.4 percent of all homes sold were affordable to families earning the area’s median income of $63,100.

In descending order, the other small markets considered least affordable in the nation are as follows:

  • Santa Cruz-Watsonville, Calif.
  • San Rafael, Calif.
  • Napa, Calif.
  • San Luis Obispo-Paso Robles-Arroyo Grande, Calif.

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