Housing Affordability Reaches All-Time High

Thanks to the National Association of Realtors, I was able to get monthly data on the Housing Affordability Index (HAI) back to 1988. As the chart above shows (click to enlarge), the October HAI of 141.8 (a family earning the median family income had 141.8%% of the income necessary to qualify for a conventional loan covering 80% of a median-priced single-family home) is the highest level on record, going back at least to January 1988.

As I mentioned in this recent CD post: a) the recent increase in housing affordability is good news for the real estate market, since it will help in the recovery process (i.e. a "Larry Kudlow mustard seed"), and b) this increase in housing affordability, now reaching an all-time historical high, has gone unreported by the media, I still can't find a single news report on this topic.

Comments

[Steven Hansen:]

mark, if this is true i cannot understand why everyone is not running out to buy a house. could it be they cannot afford it?

the problem with your data is that you used national data and averages. do it again looking at the 50th percentile and lower only, and do it by each municipal market and you will see the problem. as you have pointed out in past posts, the housing problem is not universal - it is localized.

2008 Dec 05 04:56 AM

[walters:]

I would not thank the National Asssociation of Realtors for anything. And if you rely on them, you should have someone help you cross the street.

2008 Dec 05 08:38 AM

[Wandering W...:]

Mark, Part of the reason this has had little affect on the housing market is contain within your post. "of the income necessary to qualify for a conventional loan covering 80% of a median-priced single-family home". It that pesky little 20% that they have to come up with. For a nation of spendaholics who haven't saved anything this will prevent any upturn in the housing market until they get back to the zero down, no doc, liar loans.

2008 Dec 05 08:51 AM

[nobull:]

Spin it all you want. Fact is housing is still OVERPRICED!!! Simply compare what it costs to own the house against what it costs to rent the same house.
These dumb no-clue throw-taxpayer-money govt and Fed should focus on creating jobs instead. Enough housing nonsense!!! Leave it to correct - its natural, its necessary, its healthy.

2008 Dec 05 09:07 AM

[User 313447:]

Anyone who uses a scant twenty years of data to support a title that uses the phrase "all-time high" has no business writing, period.

2008 Dec 05 09:10 AM

[John Lounsbury:]

In spite of critical comments of others, this is a worthwhile post. If User 515447 knows of data from before 1988, perhaps he(she) could post an article. The hand, Wandering Wayfarer and nobull: good comments.

We have lost nearly 2,000,000 potential home buyers in the past year (lost employment). This is also a factor in lack of demand for houses. Not only those who lost jobs, but millions more with fear of losing employment and you have a reduction of 5,000,000 or 10,000,000 (or more) in the potential home buyer pool. The comment by nobull relates to this problem.

2008 Dec 05 09:41 AM

[Paco6945:]

Come on people! This is just a chart showing 20 years of a specific measure relating to the housing industry. I don't see anything sinister here. The comments yesterday to Perry's previous post about the HAI were laughable.

The trend is the trend. The reasons for the trend are worth exploring and several comments do this. Other commenters don't seem to have a clue.

2008 Dec 05 10:28 AM

[rogersails:]

If you look at the ratio of median home price to median family income, it is still historically high. When the Feds declare that mortgage rates will now be 0%, the median home will be affordable to a worker making minimum wage.
The NAR has, and will be, wrong about everything.

2008 Dec 05 11:46 AM

[Joe Fourpack:]

The NAR affordability index is worthless, because it ignores factors like family savings rates, available cash assets, consumer credit, indebtedness, credit servicing obligations inflation, income gains, and mortgage availability.

2008 Dec 05 02:20 PM

[Can'tSpotAB...:]

Mark

I'm sure in Flint houses are VERY affordable (to those lucky few who have a job), out here in the rest of the world real estate is grossly overpriced. Price to rent ratio is the statistic you should use to determine affordability, not fairy tales spun by the completely discredited NAR and its chief shill I mean economist Lawrence Yun.

2008 Dec 05 08:17 PM

[Bubblicious:]

Affordability at an All-Time High? Phooey, I have been waiting for this bubble to pop for 5 years. Now that Im ready willing and able to buy, the Govt keeps screwing around with Correction that should be happening,although it is to some degree.
If the Govt lowers Interest rates too much, builders and sellers will be less likely to lower the sale price of homes. The low int. rates earlier this decade allowed these same groups to raise prices to larger than normal appreciative levels. When anyone with any amount of income can buy any home they wish due to low or intro. interest rates they raise prices. If the govt lowers int rates even more the Pain will become Chronic. Let it crash,let it crash, let it crash

2008 Dec 05 10:23 PM

[poor&unempl...:]

You are actually thanking National Association of Realtors for giving you data? Did you sanitize it with bleach?

Either you were out of country for past 5 years or you work for them. These are the same morons who told all the unsuspecting buyers that "the prices would never come down. If you do not buy today, you will be homeless."

Even the Baghdad Bob had more credibility.

2008 Dec 06 01:00 AM

[scotty1560:]

Housing bubble not really about the rates-
it was about corrupt guidelines: false docs,
false apparisals, no equity via 100% or more LTV
(loan to value), and horrible overbuilding (created by
cheap money and corrupt standards).
Best thing that could happen
is re-regulation with real guidelines and
real equity (20%+), second best
thing is lower the cost of owning a home via
lower long term rates, lower property taxes,
lower insurance rates. Maintenance is much
higher via inflation. Re-regulating lenders
and stabilizing cost of owning a home is
the key for long term ownership- otherwise
better to rent - to many burdens on the
average home purchaser.

2008 Dec 06 01:22 AM

[johngonole:]

Scotty your points are well taken. They are over simplified of course. The bubble was created by a perfect storm

1) After internet bubble investors were looking for a can't lose oppurtunity
2) Media convinced everyone that real estate never falls.
3) Federal Reserve lowered interest rates too long forcing prices upward reinforcing point number 2
4) Speculators and house flippers join the party further pushing prices up with all the easy credit stuff you rightly complain about above. That happened of course because the risk was seperated from the load oringinators.
5) Current govt actions and future regulation will contine to allow this to all happen again. After all the govt poured the fuel on this fire. They will do it again after all why would we need them if they didn't screw things up.

With regard to affordability I just don't believe it. Descretionary parts of people budgets are too tight to support current prices. Also most haven't saved enough for the down payment you propose. Furthermore wages are stagnant and unemployment is going up. Plus remember that the upper 20% make up most of the income. So I agree with someone else earlier who said you need to break out the bottom 50 percentile and compare to the bottom 50 percentile on home prices. I'd be willing to bet its not as affordable as you think. Plus property taxes are much higher now due to the higher property valuations.

I'm in Florida prices aren't even back down in many areas to where they were in 2003. Incomes aren't up that much. I think your data is skewed.

2008 Dec 07 02:45 AM