Housing Affordability Reaches All-Time High

by: Mark J. Perry
Rising prices for oil, gas and food are making those items less affordable these days, but housing is a different story - there's probably never been a time when it's been more affordable than today. Data from the National Association of Realtors show that its composite Housing Affordability Index reached an historical high of 191 in January of this year. Thanks mostly to falling home prices, a family with the median income of $61,533 had almost twice (191%) the income needed ($32,208) to qualify for a 30-year, fixed-rate mortgage at 4.82% to purchase the median priced single-family home in January ($159,400), assuming a 20% down payment.

Here's one way to see how affordable housing is today: In 2008, the monthly payment on the median-priced home then of $196,600, financed at the prevailing mortgage rate then of 6.15% with a 20% down payment would have been $958.19. For today's median-priced home financed at 4.82% the monthly payment would be 30% less, at only $670.60. Especially for first-time home buyers, housing has never been more affordable, and those $200-300 monthly savings compared to payments in 2008 will more than offset rising gas and food prices.

Record-high housing affordability just doesn't seem consistent with the inflationary pressures that many seem concerned about, does it? For example, the inflationary periods in the late 1970s and early 1980s were periods of rising home prices (double-digit increases for 11 consecutive quarters in the late 1970s) and rising mortgage rates (reaching 18.5% in 1981), and we've got almost just the opposite today. Rising and record-high housing affordability seems more consistent with deflation than inflation?