Mortgage Rates Fall to Record Low, Housing Affordability Surges to Record High

Mortgage rates fell yesterday to an historic record-low of 4.96% (see chart above), "the lowest mark since Freddie Mac started tracking the data in 1971." That should help push the Housing Affordability Index (HAI) to a new estimated record high level of 163.1 in January (see chart below). The National Association of Realtors (NAR) has HAI data through October 2008, and I have estimated the HAI for November, December and January using the NAR methodology.

A HAI of 163.1 would mean that the typical household earning the median family income of $60,840 (estimated) in January would have 163.1% of the qualifying income to purchase a median-priced existing single-family house ($181,000 - estimated for January) with a 20% down payment, which would be the highest level of housing affordability in history.

Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $37,296, with monthly payments based on a 4.96%, 30-year fixed-rate mortgage ($777 per month for principal and interest). Given the median family income of about $60,840 (est.), the typical family would have 163.1% of the income required to qualify for the mortgage to purchase the $181,000 home.

Comments

[{5U}:]

Note that the Housing Affordability Index is designed by THE NATIONAL ASSOCIATION OF REALTORS!!!!!

WHAT A JOKE!!

With 40% of equity market wealth slashed, outsized bonuses gone, and a massive glut of housing inventory, housing is clearly not cheap on a RELATIVE basis.

We are in a new brave world. Borrow $ at low rates to buy an inflated asset. Sounds like a bad trade. And what about unemployment?

HOPE and CHANGE

Jan 16 03:41 AM

[Kacey:]

Good Point.

The other frustrating point is the definition of this "Affordability" index. It does not factor in the more stringent credit criteria that is ultimately declining 40% of today's applicants.


On Jan 16 03:41 AM Equity Has No Clue wrote:

> Note that the Housing Affordability Index is designed by THE NATIONAL
> ASSOCIATION OF REALTORS!!!!!
>
> WHAT A JOKE!!
>
> With 40% of equity market wealth slashed, outsized bonuses gone,
> and a massive glut of housing inventory, housing is clearly not cheap
> on a RELATIVE basis.
>
> We are in a new brave world. Borrow $ at low rates to buy an inflated
> asset. Sounds like a bad trade. And what about unemployment?
>
>
> HOPE and CHANGE

Jan 16 08:13 AM

[andyn:]

median-priced existing single-family house is "$181,000".
WHAT A JOKE... come to the Bay Area... its still way up there in the 400 and 500's to get a single family home.
And yes, I know the argument would be that the median income is also higher.
But its not double the median salary unlike the houses.

In other words, house prices have still a long way to go down.
Remember Japan had a property crash of almost 80%. We have merely touched 23% from the highs... so buyers, be patient for the ride below.

Jan 16 10:02 AM

[cyclops:]

Hurry !!!! This is the real bottom !!!! I mean it this time ! BUY, BUY, BUY!

Jan 16 10:05 AM

[kcr357:]

Housing Affordability Surges to Record High- NO, it is surging to its actual market value. Thumbs down to the author

Jan 16 11:50 AM

[Paco6945:]

Guys, calm down.

It's a graph. Graphs are used to show trends by comparing actual numbers over time. In case you still haven't figured out what Mark Perry does, here's a clue: He publishes charts and graphs.

It doesn't matter that the NAR designs or sponsors the HAI. The numbers are simply what the numbers are. So, in 2005, the HAI was around 100. Now it's around 163 (although I suppose Perry's estimates for Dec and Jan could be wrong). Make of this what you want.

As a speaker at a recent workshop I attended said: "I've got charts and graphs to back me up, so go say a prayer to ST. FU."

Jan 16 06:19 PM