Housing Affordability Index: Surprise, It's a Buyer's Market

The National Association of Realtors released its latest report today on the Housing Affordability Index [HAI] for April, showing a slight decline to 129.4 from the March level of 130 (see chart below) due to a slight increase in median-price home in April.

A composite HAI of 129.4 means that a family earning the median family income in April ($60,185) had 129.4%% of the income necessary to qualify for a conventional loan (at 6.03%) covering 80% of a median-priced existing single-family home in April ($200,700).

Since July 2007 when the HAI was at only 103.6 (due to higher home prices and interest rates, $228,500 and 6.8% respectively), the 25.8 point increase in housing affordabilty to 129.4 in April should continue to play an important role in the recovery process for the slumping real estate market. It's a buyer's market.

Comments

[User 26737]

it's a buyers market ............. duh ..... thud..... brilliant deduction!!

[LiquidSoapDispenser]

I assume the title of this article was sarcasm, since you'd have to have your head in the sand on Mars to not know what is up with the housing market... Which would that, duh, User 26737 is too dense to get obvious sarcasm.

[delta7777]

the real question is not whether it is a buyer's or a seller's market, but whether it is advisable at all to buy at this time, or to wait things out a bit. The switch point from buyer to seller mart will depend on a decision to buy becoming obvious based on the balance between a deteriorating housing price and an increasing interest rate. Realistically, home pricing will have to come more rationally in line with rental costs, adjusted of course for factors such as deductibility, etc. It is really quite irrational to pay a lot of money to purchase an ongoing negative cash flow, regardless of how strong one's ego is.

[Rhett]

Two words about purported housing affordibility: Bee Ess!

[Eagle-Chief]

Mark - when I hear someone say it's a buyer's market, I say "It's not a buyer's market, IT'S A SUCKER'S MARKET!" It's a sucker's market because a house bought today could well be worth substantially less in a year or two.

Many housing markets are still priced excessively. Many owners still wish to believe that their houses are worth 3 to 4 times their pre-bubble prices. Affordablity is still a major factor is many markets, especailly with family budgets strained by rising food and energy prices. However, prices are coming down and caution is the order of the day.

There are areas that may be safer to buy. I have read that parts of of your state, Michigan (Detroit), have seen their housing markets decimated. But if a midwesterner like yourself comes out to sunny California, you probably will not write an article with the title listed above. Prices are lowering, but it's still a SUCKER'S MARKET.

[Redfish]

Mark - the "national" HAI is somewhat meaningless given the extraordinary variability of the value from market to market. I realize it's used as a macro measure, but as other commentors have noted, there are a lot of markets that will see very large price corrections before it's all over.

I run a real estate market research company and we think that affordability is one of the most critical indicators of the overall health of a given real estate market - and yet we see very little discussion today focused on restoration of affordability. It's common sense, but you'd be amazed how much teeth gnashing is going on in markets that are very poorly affordable for single family, though multifamily investors are fat and happy in those very markets.

Good for you for thinking about affordability issues, there needs to be a lot more attention to the affordability issue in the upcoming months. This would be a prime opportunity for realtors and brokers to come out and support a concept that would truly help consumers across the nation, though most realtors and brokers have no concept of the issue.

Mark McGlothlin, MD
RedfishEmergingMarkets...