Even though home prices have been
rising, the National Association of Realtors® (NAR) said today that 2012 appears primed to set a
record for housing affordability. With
11 months of data in, NAR's Housing Affordability Index was at 198.2 in
November, down 2.5 index points from October but 1.5 points higher than in
November 2011. When December data is compiled, NAR projects that the
housing affordability index for 2012 will be a record high 194, up from 186
from 2011, the previous record year.
The index is based on the relationship between median
home price, median family income, and average mortgage interest rate. An index of 100 is the point where a
household with a median income for the local area has exactly enough income to
qualify for the purchase of a median-priced single family home in that
area. The assumptions are the buyer has
a 20 percent downpayment and that the resulting mortgage payment would not exceed
25 percent of gross income. The higher the index, the greater the household
purchasing power and buyers with small downpayments, typical of first-time
buyers, would have relatively lower affordability levels.
In computing the index NRA used a national median home
price of $180,600 and median income of $61,758.
The principal and interest payment would be $649 which represents 12.6 of
In the Northeast the median home price was $230,000 and
income was $71,066 resulting in an index of 180.1, up from 178.4 in
October. The Midwest had the highest index
at 250.7, up 0.5 from October, based on a home price of $143,100 and income of
$61,732. In the South the median home
was priced at $161,300 and the income was $56,821 for an index of 204.8, down
from 210.6. The West had the lowest
affordability index of all regions at 145.8, down from 147.2. The median home price in the west was
$251,200 and the median income was 63,527.
Lawrence Yun, NAR chief economist,
said home buyers are able to stay well within their means. "Although 2012
was highest on record, the excessively tight underwriting precluded many would-be
homebuyers from locking-in generational low interest rates," he said.
"Rising home prices and a gradual uptrend in mortgage interest rates will
offset improvements in family income, but 2013 likely will be the third best on
record in terms of household buying power. A window of opportunity
remains open for buyers who can qualify for a mortgage."
NAR projects the housing
affordability index to average 160 during 2013, which means on a national basis
that a median-income family would have 160 percent of the income needed to
purchase a median-priced existing single-family home. Conditions vary
widely by region but even in the West, where the regional index is lower, NAR
said the typical family is well positioned in most markets.
Association President Gary Thomas said
the minor erosion in affordability conditions moving forward could be mitigated
by bank and regulatory policies. "Clearer rules from the government
regarding future lawsuits and buybacks of Fannie and Freddie loans could
encourage banks to use their massive cash holdings to originate more loans. A
more sensible lending environment that makes it easier for other financially
qualified buyers to get a mortgage would allow many more households to enter
the market, boosting home sales as much as 10 to 15 percent," Thomas said.