Housing Affordability Surges

by: Mark J. Perry

The National Association of Realtors (NAR) released its latest Housing Affordability Index (HAI) today, showing that housing affordability reached an all-time record high of 158.8 in December (see chart above).

A HAI of 158.8 would mean that the typical household earning the median family income of $61,058 in December would have 158.8% of the qualifying income to purchase a median-priced existing single-family house ($174,700) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1988. Since mid-2006, the HAI has risen by almost 60 points, from 100 to 158.8 (see chart).

Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $38448, with monthly payments based on a 5.59%, 30-year fixed-rate mortgage ($801 per month for principal and interest). Given the median family income of about $61,058, the typical family would have 158.8% of the income required to qualify for the mortgage to purchase the $174,700 home.

Hopefully, the increasing affordability and new record-high housing affordability will play an important role in the real estate market's recovery.

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