The Bottom Line about Housing Affordability
I watched one of my local channels this week in curiosity, waiting to hear their interviews ‘with local experts’ and detailed report on Charlotte’s housing affordability. Lately, there have been many headlines decrying an “affordability crisis” in the residential real estate market and this report was no different.
While it is true that buying a home is less affordable than it had been, especially over the last ten years, what do today’s housing reports really mean? What do they really reflect about affordability and the local economy?
According to our local, so-called ‘experts’ who were interviewed for this particular local news story, first time homebuyers, who have been priced out of the market due to rising housing prices, should totally buy a lot and build a home. (Yes, that was his advice.) Folks, no real estate agent with experience is going to tell you to do that in this market! So much for the ‘expert’ opinion on a subject that frequents the news and has possibly been the #1 real estate news story in 2019.
On a monthly basis, the National Association of Realtors (NAR), produces a Housing Affordability Index. According to NAR, the index…
“…measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.”
Their methodology states:
“To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.”
What this means is that the higher the index, the more affordable it is to purchase a home. Here is a graph of the index going back to 1990:
*Graphics and data provided by Realtor.com via KCM (Keeping Current Matters)
The affordability index is lower today than any year from 2009 to 2017. However, we must realize the main reason homes were more affordable. That period of time immediately followed a housing crash and there were large numbers of distressed properties (foreclosures and short sales). Those properties were sold at large discounts. We really shouldn’t bemoan the fact that we’re not as affordable as then - many Americans didn’t have jobs and if they did, they were making considerably less than they are now.
Today, the index is higher than any year from 1990 to 2008. Based on historic home affordability data, that means homes are more affordable right now than any other time besides the time following the housing crisis.
Mortgage rates remain historically low and wages are finally increasing, showing that it is MORE AFFORDABLE to purchase a home today than it was last year!
With wages increasing, price appreciation moderating and mortgage rates remaining near all-time lows, purchasing a home is a smart financial move based on current and historic affordability numbers.
Thinking of buying a home in Charlotte? My advice to you is to bypass the media reports and…Let’s talk!
© Debe Maxwell | The Maxwell House Group | RE/MAX Executive | CharlotteBroker@icloud.com | The Bottom Line about Housing Affordability