Housing Affordability Record
According to information for the first 11 months of last year, the National Association of Realtors® (NAR) says 2012 will most likely set a new record for housing affordability. Contributing factors are the historically low mortgage interest rates and home prices drastically lower than the peak years of 2006-2007.
The NAR’s Housing Affordability Index hit a high of 198.2 in November. The index looks at the relationship between median home price, median family income and the average mortgage interest rate. The higher the index the greater the home purchasing power for U.S. consumers.
Record keeping began in 1970, and an index of 100 is defined as “the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home.” The qualifiers assume a 20 percent down payment and only 25 percent of gross income devoted to the monthly mortgage payment (combined principal and interest).
The November figures were down 2.5 index points from the previous month but 1.5 points higher than November of 2011. The NAR is expecting that when December figures are assessed that the affordability index for all of 2012 will be a record high of 194, this would be up from an index of 186 for 2011, which was also a record year.
When computing the index the NAR used a national median home price of $180,600 and a median income of $61,758. The monthly mortgage payment, including principal and interest, would be $649, which represents 12.6 of household income.
The NAR projects a housing affordability index averaging 160 for 2013. By definition this means that on a national basis a median-income family would have 160 percent of the income needed to purchase a median-priced existing single-family home.
Though home prices are rising, the NAR projects that “2013…likely will be the third best on record in terms of household buying power.”