Nationwide Housing Affordability Index at Highest Level Since 1970

Nationwide Housing Affordability Index at Highest Level Since 1970

by Michelle Carr Crowe, Silicon Valley guide and Cupertino real estate agent

The National Association of REALTORS(R), aka NAR, reports the Nationwide Housing Affordability Index is at its highest level since tracking began in 1970.

The “Housing Affordability Index,” is a measurement used to gage how well the U.S. median family’s income can afford a median priced U.S. home.

Assumptions made by the index include:

20% down payment

25 percent of the household’s gross income is devoted to principal and interest payments

a Mortgage at the median interest rate.

An index of 100 is the point where the median income household has exactly enough income to qualify to purchase the median-priced single family home at median mortgage interest rate.  The higher the index number, the more home purchasing power the family possesses.

Since the Housing Affordability Index measures purchasing power through monthly payments related to household income, home prices and mortgage interest rates change the index number.

NAR expects the Housing Affordability Index to be 194 for 2012, based on all currently available information, a record number since NAR started tracking the index back in 1970.  The Housing Affordability Index was a record 186 in 2011.

NAR’s chief economist, Lawrence Yun notes home buyers can now stay well within their purchasing power, assuming borrowers meet today's lenders' still relatively stringent lending standards.

“Although 2012 was highest on record, the excessively tight underwriting precluded many would-be homebuyers from locking-in generational low interest rates,” Lawrence Yun says.

“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.”

What does this mean?

SELLERS: More buyers can comfortably afford to buy homes in 2013.

BUYERS: You (and your competitors) are better positioned to afford to buy a home in 2013.

To learn more about the Housing Affordability Index, visit the National Association of REALTORS(R) site at www.realtor.org.