Housing Affordability at 5 Year Low

The National Association of Home Builders and Wells Fargo have recently reported that home affordability, as measured against the median national income of $64,400, was at a 5 year low. The Housing Opportunity Index indicates that 69.3% of new and existing homes sold during the second quarter of 2013 were affordable to median income group. This is down from the previous quarter, which was at 73.7. The factors that shape these numbers, generally, are the median household income, which has remained low since the recession, the median price of homes sold and prevailing borrowing costs, i.e., interest rates and fees. This year has seen the largest increase in home values since the housing bubble of 2005, and interest rates are now at a 3 year high. There appears to be a dearth of housing inventory, particularly in larger cities, which is the leading contributor to this recent run-up of existing home sale prices. As for newly constructed homes, the increased cost of materials is directly affecting the price at which new homes can be sold by builders. Home affordability is usually part and parcel to economic inflation as a whole, but with inflation practically non-existent (remember household income) such an aberration in this particular sector is a cause for concern. Is it an indicator of another potential housing bubble? How can affordability be so much higher when much of the nation is still reeling from high rates of vacancy? What about all those bank owned properties? With interest rates expected to continue to rise, it wouldn't be surprising to see stagnation return to the housing sector.