There is a downside to rapidly rising home prices: declining home affordability.
The share of new and existing homes affordable to median-income families plunged in the third quarter, to 64.5 percent, according to an index report from the National Association of Home Builders released today. That's down from 69.3 percent in the second quarter -- the biggest drop since second-quarter 2004.
"Housing affordability is being negatively affected by a 'perfect storm' scenario," said NAHB Chairman Rick Judson in a statement.
"With markets across the country recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots and labor."
NAHB Chief Economist David Crowe said higher mortgage rates also contributed to the decrease in affordability.
The most affordable major housing markets in the U.S. last quarter were Indianapolis-Carmel, Ind., and Syracuse, N.Y., with 93.3 percent of homes sold in the third quarter affordable to families earning the areas' median income.
For the fourth straight quarter, the least affordable market in the U.S. was the tech-heavy San Francisco-San Mateo-Redwood City, Calif., metro area where just 16 percent of sold homes were affordable to median-income families in the third quarter.