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Zillow: Home affordability tied to new construction

Posted on Thursday, April 2, 2015 at 7:55:13 AM

Home affordability is something on the minds of many homeowners. As prices rise, factors like residential financing rates and the inventory of homes for sale all play a role.

According to Zillow, one aspect of the housing market is closely tied to overall affordability: low housing supply. Where there are fewer homes, the prices are higher.

Zillow pointed out that the regions with the lowest permits-to-residents ratios were mostly in California, with markets like San Francisco - one of the most expensive in the country - having trouble building new homes.

However, the U.S. Commerce Department reported that building permits on a national level are on the rise, with year-over-year permits ticking up 7.7 percent in February and 3 percent month-over-month. While national levels are improving, as is general affordability, individual markets that have a low supply of new homes see increased costs for homebuyers.

Concerns over new construction are reflected by the National Association of Home Builders, which noted that builder confidence in new, single-family homes slipped in March

"The drop in builder confidence is largely attributable to supply chain issues, such as lot and labor shortages as well as tight underwriting standards," said NAHB chief economist David Crowe.

With that said, affordability today depends on the market. Where homebuyers choose to look will greatly impact how much they spend.