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How Legitimate is the NAR Housing Affordability Index


Recently, I was sucked into a conversation around the water cooler about home affordability and the impact on the real estate market. The primary topic of the conversation was that home ownership was more affordable than in years past and that first time home buyers would flood back to the market.
When I asked how does one calculate home affordability, no one really had an answer. One individual did mention that they heard something on the news about the National Association of Realtors (NAR) realeasing a Housing Affordability Index.
I wanted to get the facts behind the published report; therefore, I visited the resource section of Realtor.org and browsed the reports. NAR definitely has a tremendous amount of data to analyze through its members and is highly motivated to keep their organization relevant.
At first glance, the numbers were impressive. The Housing Affordability Index reached an all time-high in January 2009 with a reading of 172.6. When we talk about all time-high, this means since the inception of the index in 1971. For comparison, the index was 107.6 at the peak of home values in 2006.
Could this be true? How could home ownership be more affordable now in the worse recession ... more

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