The affordability tug-of-war between home prices and interest rates continued in the third quarter, but the National Association of Home Builders (NAHB) said this time prices won.  Home price appreciation, which continued pretty much unabated in the quarter, offset a small decline in rates and the NAHB/Wells Fargo Housing Opportunity Index (HOI), a measure of housing affordability, moved slightly lower.

The HOI quantifies the percentage of homes in the U.S. that are affordable to families with the median income of 65,700.  In all, 61.4 percent of new and existing homes sold during the third quarter were affordable, down from 62.0 percent in Q2.

The national median home price increased from $240,000 in the second quarter to $247,000 in the third quarter while average mortgage rates edged lower, from 3.88 percent to 3.76 percent.  

Elgin, Illinois and Fairbanks, Alaska were the nation's most affordable major and smaller markets respectively.  In Elgin, 94.3 percent of homes sold during the quarter were affordable to those earning the market's median income, $82,500.  In Fairbanks, the median income of $93,800 would have allowed purchase of 97.7 percent of the homes.

For the 16th consecutive quarter, San Francisco-Redwood City market was the nation's least affordable. Just 9.7 percent of homes sold in the third quarter were affordable to families earning the area's median income of $104,700.

Four of the five least affordable small housing markets were also in California with the least affordable being Salinas.  There the area's median income of $63,500 would have allowed purchase of 17.6 percent of all new and existing homes sold during the quarter.