What is Housing Affordability?

By
Mortgage and Lending with Movement Mortgage, LLC NMLS 188385 BRE# 188385

 

 

  

Here's a term you may have heard a lot in the news recently: housing affordability. But what exactly does it mean and how does it affect you as a homebuyer? 

 

What Is Housing Affordability? 

The two factors influencing housing affordability are income and housing prices. In general terms, housing affordability refers to the percentage of families earning the median income in a given area that would be able to purchase a home in that area. According to the joint Housing Opportunity Index (HOI) created by the National Association of Home Builders (NAHB) and Wells Fargo, housing affordability in the third and fourth quarters of 2013 basically held steady, which the NAHB reports bodes well for 2014. More specifically, according to the HOI, of the homes sold in the US between the beginning of October and end of December, 64.7 percent of them were affordable to families earning the U.S. median income of $64,400. In addition, while mortgage interest rates rose slightly, the national median home price dropped a bit, from $211,000 in Q3 to $205,000 in Q4. 

 

History of Affordability 

Before the housing crisis, affordability across the country generally stayed in the mid-50 percent to mid-60 percent range, meaning about 55 percent to 65 percent of all US families could afford to buy a home at the median home price. In 2005 through 2007, that number took a nose dive in the 40 percent range as the bubble grew and burst. We've been in recovery mode ever since, and in fact, affordability hit its highest peak since tracking began in Q1 of 2012, when affordability rose to 77 percent. While we've come down a bit since then, we're still in a great range that indicates homeownership is attainable for more than 60 percent of American households. 

 

Affordability and You 

You've probably figured out by now that as affordability drops, so does your purchasing power. Home prices are steadily creeping up as homeowners regain equity in their properties, which is good for sellers, but is reducing the purchasing power of buyers, or the "amount of home you can afford." A growth in available homes is expected this year, according to the National Association of Realtors(R) (NAR), and that will slow the decline of affordability, but mortgage interest rates are rising and are expected to continue to rise, and the NAR projects rates to top 5 percent this year. 

 

So what's the bottom line? Our best advice is Buy Now. You can still afford a great home, but the size and desirability of the home you can afford may be decreasing as home prices and mortgage interest rates rise. If you're ready to take advantage of the high affordability index before factors change, call me to review your options and help you get into the new home you really want. I look forward to working with you.  

affordability. But what exactly does it mean and how does it affect you as a homebuyer?

What Is Housing Affordability?
The two factors influencing housing affordability are income and housing prices. In general terms, housing affordability refers to the percentage of families earning the median income in a given area that would be able to purchase a home in that area. According to the joint Housing Opportunity Index (HOI) created by the National Association of Home Builders (NAHB) and Wells Fargo, housing affordability in the third and fourth quarters of 2013 basically held steady, which the NAHB reports bodes well for 2014. More specifically, according to the HOI, of the homes sold in the US between the beginning of October and end of December, 64.7 percent of them were affordable to families earning the U.S. median income of $64,400. In addition, while mortgage interest rates rose slightly, the national median home price dropped a bit, from $211,000 in Q3 to $205,000 in Q4.

History of Affordability
Before the housing crisis, affordability across the country generally stayed in the mid-50 percent to mid-60 percent range, meaning about 55 percent to 65 percent of all US families could afford to buy a home at the median home price. In 2005 through 2007, that number took a nose dive in the 40 percent range as the bubble grew and burst. We've been in recovery mode ever since, and in fact, affordability hit its highest peak since tracking began in Q1 of 2012, when affordability rose to 77 percent. While we've come down a bit since then, we're still in a great range that indicates homeownership is attainable for more than 60 percent of American households.

Affordability and You
You've probably figured out by now that as affordability drops, so does your purchasing power. Home prices are steadily creeping up as homeowners regain equity in their properties, which is good for sellers, but is reducing the purchasing power of buyers, or the "amount of home you can afford." A growth in available homes is expected this year, according to the National Association of Realtors(R) (NAR), and that will slow the decline of affordability, but mortgage interest rates are rising and are expected to continue to rise, and the NAR projects rates to top 5 percent this year.

So what's the bottom line? Our best advice is Buy Now. You can still afford a great home, but the size and desirability of the home you can afford may be decreasing as home prices and mortgage interest rates rise. If you're ready to take advantage of the high affordability index before factors change, call me to review your options and help you get into the new home you really want. I look forward to working with you.

 

Comments (3)

John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Dave - Thank you for the detailed very good information about what is housing affordability.

Apr 25, 2014 10:44 AM
Christi Hacker
Realty ONE Group Sterling - Omaha, NE
Your Omaha Area Real Estate Specialist

I like your advice Dave. Buy now. It's a great time to make your move. 

Apr 27, 2014 12:59 PM
American Brokers Realty Group
American Brokers Realty Group, Inc - Cape Coral, FL

Very well written blog with excellent information.  I will be looking forward to your future post.

Apr 30, 2014 08:30 PM