Housing Affordability Index to Set New Record in 2012

The National Association of Realtors reported Jan. 9 that 2012 is set to become a record year for favorable housing affordability conditions, as well as an advantageous year for buyers qualified to obtain a mortgage.

“Although 2012 was highest on record [for home affordability], the excessively tight underwriting precluded many would-be homebuyers from locking-in generational low interest rates,” Lawrence Yun, NAR chief economist, said in a news release. “Rising home prices and a gradual uptrend in mortgage interest rates will offset improvements in family income, but 2013 likely will be the third best on record in terms of household buying power. A window of opportunity remains open for buyers who can qualify for a mortgage.”

NAR’s national Home Affordability Index, which is based on the relationship between median home price, median family income and average mortgage rate, was at 198.2 in November. An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home.

A higher index represents greater household purchasing power. For first-time home buyers making small down payments, however, affordability levels are comparatively lower.

NAR projects the housing affordability index to reach a record high of 194 for all of 2012, which would mean that a median-income family would have 194 percent of the income needed to purchase a median-priced existing single-family home, on a national level. This would be up from the previous record of 186 in 2011.

NAR began recording the affordability data in 1970.

Moving forward, slight declines in affordability conditions could be mitigated by bank and regulatory policies.

“Clearer rules from the government regarding future lawsuits and buybacks of Fannie and Freddie loans could encourage banks to use their massive cash holdings to originate more loans,” Gary Thomas, NAR president and broker-owner of Evergreen Realty in Villa Park, Calif., said in the news release.

NAR projects the Home Affordability Index to average 160 during 2013. The Midwest is well-positioned with the highest buying power, while the West has the lowest index.

About TARR Report

S.M.A. Publications was formed in 1997 with a mission of providing real estate information for practitioners within the Research Triangle Park area of North Carolina. The company produces the T.A.R.R. Reports which are published monthly, quarterly and annually, covering all aspects of the residential real estate market. The publisher, Stacey P. Anfindsen, has over 23 years of residential experience in the Triangle market. He is an active real estate appraiser, educator and consultant.
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