Housing Opportunity Index at its Lowest Since 2018

The National Association of Home Builders (NAHB) now has data for Q2 of the year for its Housing Opportunity Index, which measures affordability of homes compared to median income. The US adjusted median income is currently $72,900. With these earnings, 59.6% of home sales were affordable in Q2 of 2020. This is down from 61.3% in Q1. This downward trend is largely expected, though, since the overall direction of movement has been down since NAHB introduced the Housing Opportunity Index in 2012, with occasional ups and downs. At its inception, the value was 78.8%.

What causes affordability to go down? The index looks at three factors: mortgage interest rates, median incomes, and home prices. Since interest rates are at historic lows right now, they’re not the culprit for falling affordability. Home prices are still rising more quickly than the median income, despite the rate of increase for home prices dropping in the last several years. Not to mention much of the recent boost to median income is not actually a result of increased wages, but rather job losses — since unemployed persons are not included in the median income figure, low-wage earners losing their jobs due to the recession and COVID-19 has artificially inflated the median income.

Photo by Diane Helentjaris on Unsplash

More: https://journal.firsttuesday.us/homebuilders-housing-opportunity-index-declines/73810/

Residential Construction Continues to Slow

Residential construction of both single-family residences (SFRs) and multi-family housing has been on a downturn since the most recent peak in 2018. SFR construction in particular is a long way down from the 2005 numbers when they started to nosedive, while multi-family housing construction has been relatively stable since the 1980s, albeit much lower than it should be.

The number of SFR starts in 2020 is projected to be about 53,000, 10% lower than in 2019 and less than a third of the 2005 number of 154,700. Multi-family housing construction has rebounded from the 2009 trough, but at an expected 48,000, is still down 5% from last year. For multi-family housing, the 50,300 value in 2005 was actually lower than the 2017 and 2018 peak of 53,800 both years.

Photo by Sven Mieke on Unsplash

More: https://journal.firsttuesday.us/the-rising-trend-in-california-construction-starts/