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Uncertainty in Housing Continues as Affordability Hits Record-High Yet Starts Decline

Written by Peter L. Mosca on Tuesday, 01 December 2009 6:00 pm
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Nationwide housing affordability, bolstered by affordable interest rates and low house prices, hovered for the third consecutive quarter near its highest level since the series was first compiled 18 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI). The HOI showed that 70.1 percent of all new and existing homes sold in the third quarter of 2009 were affordable to families earning the national median income of $64,000, down slightly from a near-record 72.3 percent during the previous quarter and up from 56.1 percent during the third quarter of 2008.

"At a time when housing is at its most affordable, we applaud the recent actions taken by Congress and President Obama to stimulate housing by extending the federal tax credit beyond its Nov. 30 deadline and expanding it to a wider group of eligible home buyers," said NAHB Chairman Joe Robson, a home builder from Tulsa (OK).

"With interest rates now lower than last quarter, the tax credit will encourage even more home buyers to enter the market and help stabilize housing and the economy by creating new jobs, stimulating home sales, reducing foreclosures, cutting excess inventories and stabilizing home prices." Indianapolis was the most affordable major housing market in the country during the third quarter, a position the metro area now has held for 17 consecutive quarters. Almost 95 percent of all homes sold were affordable to households earning the area’s median family income of $68,100. Also near the top of the list of the most affordable major metro housing markets were Youngstown-Warren-Boardman, Ohio-Pa., and three Michigan metropolitan areas, Detroit-Livonia-Dearborn; Warren-Troy-Farmington Hills; and Grand Rapids-Wyoming.

On the flip side, New York-White Plains-Wayne, N.Y.-N.J., was the nation’s least affordable major housing market during the third quarter of 2009, the New York metro area’s sixth consecutive appearance at the bottom of the list. Slightly more than 19 percent of all homes sold during the third quarter were affordable to those earning the New York area’s median income of $64,800. The other major metro areas near the bottom of the affordability scale included San Francisco; Honolulu; Santa Ana-Anaheim-Irvine, Calif.; and Nassau-Suffolk, N.Y.

At the same time affordability brought good news to the market, nationwide housing production fell 10.6 percent to a seasonally adjusted annual rate of 529,000 units in October. Some attributed the drop to builder hesitance on the pending tax credit extension while others attributed the decrease to an industry that has yet to right itself.

"As of October, the deadline for starting a home that could be completed in time for purchasers to take advantage of the $8,000 first-time home buyer tax credit had come and gone, and builders had no clear sign of whether Congress would extend the credit beyond the end of November," explained Robson. "However, now that Congress has wisely moved to extend the tax credit into next year and expand its eligibility to more buyers, we hope and expect that this will have a substantial stimulative effect on home sales and help keep the housing market solidly on the road to recovery." Single-family housing starts declined 6.8 percent in October to a seasonally adjusted annual rate of 476,000 units, the slowest pace since May of this year. Meanwhile, multifamily housing starts fell by a dramatic 34.6 percent to a seasonally adjusted annual rate of just 53,000 units - the slowest pace on record. Combined starts activity fell across the board in October, with the Northeast posting an 18.8 percent decline, the Midwest a 10.6 percent decline, the South a 9.6 percent decline and the West an 8.5 percent decline, respectively.

"Builders were clearly in a holding pattern in October as the future of the home buyer tax credit hung in the balance," agreed NAHB Chief Economist David Crowe. "That said, significant challenges continue to confront builders with regard to obtaining financing for viable projects and appropriate appraisal values on newly built homes." Permit issuance, which can be an indicator of future building activity, fell 4 percent overall in October to a seasonally adjusted annual rate of 552,000 units, due primarily to a double-digit drop-off on the multifamily side. While single-family permits held virtually flat at 451,000 units, multifamily permits were down nearly 18 percent to 101,000 units.

Regionally, permit activity was mixed, with the Northeast posting no change for the month, the Midwest registering a 2 percent gain, the South posting a 5.8 percent decline and the West posting a 6.7 percent decline, respectively.

[Note: The NAHB/Wells Fargo HOI is a measure of the percentage of homes sold in a given area that are affordable to families earning that area's median income during a specific quarter, www.nahb.org/hoi]

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