Housing Affordability Conditions At Historically Favorable Levels
Housing affordability conditions for all buyers are faring well so far in 2012 showing a modest increase nationally is all regions but one. The National Affordability Index is based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. Nationally the index reached 183.80 representing a 4.14% increase from this time last year.
National & Regional Affordability Spotlight
The largest year over year increase was posted in the Northeast at 5.79 percent however with an index level of 155.40, well below the national average. This is due partially to the Northeast having the highest median home price in the nation at $250,800 and the highest qualifying income requirement.
Following close behind was the Midwest with a 5.17 percent rise posting the highest affordability in the nation at 223.90. This mark which is more than double the minimum qualifying income and 21.82% above the national level is due to the Midwest having the lowest median sales price ($148,700) and lowest percentage of income P&I payment (11.2%).
The South fared equally well with a 4.61 percent gained posting an index of 190.60, the most in-line with the national average of all regions. The lowest mortgage rates in nation were a contributing factor in the South’s very reasonable affordability level, as well as stable median home prices.
The only region to post a decline, albeit marginally at 0.20 percent, was the West which came in at 146.90. The West has recently seen to an increase to median home prices which contributed to significantly low affordability levels, as well as having the highest percentage of income P&I payment (17%) and the highest mortgage rates (3.99%).
A rising affordability index signifies that market conditions are optimal for home buyers. For those with good credit, there have never been better housing affordability conditions or market opportunities than at present. Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy.Home sales would be much higher if lending standards would return to normal.
The index shows the median income family, earning $61,038, could afford a home costing $336,200 which is almost double the national median existing single-family home price of $182,900. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.60% of gross income.
Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home. For all of 2012 the index is projected to set an annual record, averaging 190 for the year.
A composite index of 100 is defined as the point where a median-income family household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent down, 80 percent loan-to-value payment and 25 percent of gross income devoted to mortgage principal and interest payments.