The Housing Affordability index fell by 11% in May, as higher home prices and lower incomes are taking their toll.
By Manuel Gutierrez, Consulting Economist to NKBA
The average price of a new house soared to $345,000 in April, a whopping 21% above a year ago. Similarly, the typical existing home sold for $365,000, a significant 14% higher.
As house prices continue to exhibit double-digit gains, a phenomenon not seen in the past few years, the question arises as to when the average family will begin to be priced out of the housing market — which will have a decided impact on kitchen and bath remodeling.
There are several agencies and businesses that calculate housing affordability, but the one most commonly used is generated by the National Association of Realtors.
Housing affordability for the average family dropped by 11% in May, as continued higher prices are taking their toll.
According to the latest house price and income data, affordability dropped sharply in May. The index fell 11% to 155.8, down from 175 in April.
Also, compared to May 2020, when the index was 180, the latest reading of 155.8 puts the index 13% lower.
Housing affordability is calculated via an index that combines house prices, household income and mortgage rates. Although mortgage rates have recently fallen and remain low by historical standards, the other two components have moved in unfavorable directions. House prices, as cited above, have risen sharply, while personal income fell by a whopping 13% in April. This sharp decline is the result of a substantial drop in the government payments made to households under the American Rescue Plan.
The net result is a plunge in affordability shown in Figure 1, a development that bears close scrutiny for those in the kitchen and bath industry.
The Case-Shiller house price index, a general measure of changes in home prices that removes the effects of such factors such as house size, amenities or location — all of which influence prices of homes sold — indicates that house prices were 13% higher in March than they were in the same month a year ago.
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