According to the Housing Opportunity Index (HOI) released by the National Association of Home Builders (NAHB) and Wells Fargo last week, housing affordability increased during the first quarter of 2019 due to decreasing mortgage rates, lower home prices and rising wages. With those improvements, however, comes additional challenges, said NAHB chairman Greg Ugalde.

“While the recent rise in affordability is welcome news, builders continue to struggle with rising construction and development costs stemming from excessive regulations, a lack of buildable lots and a shortage of construction workers,” said Ugalde, who is also a home builder and developer in Connecticut. “This means that housing affordability is going to continue to be a challenge throughout 2019, particularly in high-cost markets.”

Quarterly, the NAHB releases the HOI, which measures the percentage of homes sold in an area that are deemed affordable to families that earn the area’s median income. According to the report, the national average sales price for a home also decreased, going from $262,500 in the fourth quarter of 2018 to $260,000 in the first quarter of 2019.

Of new and existing homes sold during the first quarter of 2019, 61.4% were found to be affordable to households earning $75,500—the country’s median income. While affordability increased from 56.6% in the prior quarter,  year-over-year comparison shows a slight decrease. (Housing affordability was reported as 61.6% in the first quarter of 2018.)

“Though the federal reserve’s more dovish monetary policy stance has lowered interest rates, income growth still has not kept up with rising construction costs and home price appreciation in recent years,” said NAHB chief economist “Today four out of every 10 new and existing home sales are not affordable for a typical family. Considering recent income gains due to tax reform and a tight labor market, these affordability concerns become even more pronounced.”

According to housingeconomics.com, total housing starts rose 5.7% in April to a seasonally adjusted annual rate of 1.24 million units compared to 1.17 million in March. Within those units, 854,000 are single-family starts (a 6.2% increase) and 381,000 are multifamily starts (a 4.7% increase).  Combined single-family and multifamily starts in April rose 84.6% in the Northeast and 42% in the Midwest while starts declined 5.7% in the South and 5.5% in the West, the NAHB stated in a news release.

In the meantime, Dietz said builders are struggling to meet growing housing demands while managing rising material costs and ongoing labor and lot shortages. However, NAHB surveys show builders expect a slow and steady rise in the housing market, Ugalde added.

Members of NAHB are asked to gauge the single-family housing market as part of a monthly survey called the Housing Market Index (HMI). May results from the survey show builder sentiment is at its highest level since October 2018, as are builders’ perceptions of the current single-family sales, sales expectations for the next six months and the rate of traffic for perspective buyers.

“Builders are busy catching up after a wet winter and many characterize sales as solid, driven by improved demand and ongoing low overall supply,” Ugalde said. “However, affordability challenges persist and remain a big impediment to stronger sales.”